Predicted bank rate increase will slow market: Analyst
Today’s anticipated interest rate increase could result in a “significant deterioration” in the momentum of Vancouver’s red-hot housing market, an economist said yesterday.
“The economy has been riding above capacity so we were expecting this,” Amy Goldbloom, an economist with RBC Financial Group, said of the quarter-point increase expected to be announced today.
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Such increases are used by the Bank of Canada to ward off inflationary pressures.
“What this means for the Vancouver housing market is a significant deterioration in going forward,” she said.
Interest rates have risen two per cent since 2005 and contributed to the gearing down of the housing market, Goldbloom said.
Although the increase will cause some ripples, a tight labour market and healthy wage gains are buoying prices.
Also, “People who experienced 15 to 20 per cent gains will now only see three to five per cent gains,” she said.
Buyers hoping to purchase a first home, however, may have to wait for some time before prices drop significantly, if at all.
A decrease in housing prices will be imperceptible to all but those at higher income levels.
“Many people have been priced out of Vancouver’s detached home market and demand is shifting to condos,” she said.
Not everyone is affected by the increase though. People on fixed-rate mortgages and those who bought into the market a long time ago are inoculated, said Tsur Somerville, a professor with the Sauder School of Business at UBC.
“Housing prices in Vancouver will still rise, just not as fast as before,” he said.