Putting interest rate hike in perspective for Thompson-Okanagan home buyers
The Bank of Canada’s 1% hike in its prime interest rate today, July 13, is actually a good thing, one Okanagan-based realtor says.
“We’re still at historically low interest rates,” Shane Styles, President of Epic Real Estate Solutions, told iNFOnews.ca. “We’re just coming off a time where it was kind of crazy low. These are interest rates that are really quite comfortable.”
Mortgage rates were at 19.25% in 1982 and in the 6% to 7% range in the 2000s, still lower than the 3.5% or so in recent days (depending on mortgage type).
The 1% hike puts the bank’s prime rate at 2.5%. That’s a big jump from .25% at the start of the year and, according to a bank news release, can be expected to rise further this year.
The central bank needs to try to curb inflation that’s expected to continue in the 8% range for the next few months, the release says.
“The Governing Council decided to front-load the path to higher interest rates,” the news release says.
That means mortgage rates will jump about 1% in the coming days, which is not a problem to prospective buyers who have been pre-approved.
There’s a lot of “knee jerk” reactions to the news, much of which is unwarranted, Styles said.
One of the mortgage brokers he deals with regularly told him today, for example, that she’s getting lots of calls from people who are on fixed mortgages and think their rates just went up.
That’s not the case since their rate is fixed until renewal time.
Those who need to renew their mortgages right now may face higher interest rates but, since about 2018, they needed to qualify at 2% above the interest rate at that time. That means, they should be able to afford this relatively small increase, Styles argued.
The 1% difference means about $100 more per month on a $300,000 mortgage, Styles said.
“I go out to restaurants a lot and I watch people,” he said. “If they just ordered two less appetizers and didn’t order a bottle of wine, they would cover the difference.”
Or, he’ll see people buying $6 lattes four days a week. That covers that $100 increase.
“I think what’s happening in the market is a really good thing because it’s helping people reaffirm their priorities,” Styles said. “Restaurants are packed. I don’t see any shortage of consumer spending. It’s very different now than what happened in 2008 and 2009. We don’t have a banking failure.”
For people buying used homes, the prices in many areas have actually fallen in recent months and bidding wars are rare.
READ MORE: Some housing prices falling in Okanagan, Kamloops
That means people are better able to buy into their price range and get the home they want, rather than just grabbing whatever they can get as was happening just a few months ago.
In the pre-sale market, where Styles mostly operates, people can lock in current mortgage rates for up to five years if they’re worried about rates climbing in the two to three years it can take to get new products on the market.
“I don’t know exactly how this is going to play out but I do think that this immediate reaction by the Bank of Canada to, as they say, crush inflation is necessary. I don’t think it’s a bad thing. We need to get inflation under control and this is how we’re going to do it. Then it’s going to start to level off and we’re going to end up in an interest rate environment that, anybody who’s over 40, is going to be very comfortable with. And anybody who’s under 40, they should read some history books.”
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