Rising interest rates ‘not enough’ to cool Hamilton housing market

Experts say a rise in interest rates in Canada is probably “not enough” to gain an edge in Hamilton’s already overheated housing market.

The Bank of Canada announced last week that it was raising its key overnight rate by a quarter of a percentage point to 0.5%, as it tries to combat inflation fueled by everything, from energy prices to supply chain issues caused by the covid19 pandemic.

Several banks quickly followed with increases to their prime rates, which in turn affects the rates consumers pay with variable rate mortgages and lines of credit.

This is expected to be the first in a series of gradual quarter-point hikes that could take this key rate to 1.75% by the second half of next year.

But with supply continually catching up with demand in Hamilton, Lou Piriano, president of the Realtors Association of Hamilton-Burlington (RAHB), expects very little change in the city’s housing market.

Piriano said the adjustment “will reduce the pool of eligible buyers,” but the question remains whether those other potential buyers will be enough to keep prices where they are.

Last month, the average selling price for a single-family home in Hamilton was $1,134,153, marking a new record high for the city.

“If you have 15 bids on a property, it’s reasonable to think two or three of them might drop out because of the interest rate,” he said. “That still leaves you with 12 people bidding on that property.”

Piriano said that when interest rates rise, market demand tends to fall. The same goes for prices, described as having an “inverse relationship” with interest rates.

Even then, what could happen is still a mystery.

“You would need a crystal ball to figure it out,” Piriano said.

Boyce Collins, principal broker at Personal Mortgage Group, said rising interest rates are unlikely to mean “very much” in terms of people’s ability to borrow and buy. And it’s all down to the stress test.

This criteria requires homebuyers to qualify for a 5.25% loan, which is more than what their lender actually charges. This means buyers have already qualified for a higher rate than they actually have to pay.

Collins said for those with lower-cost variable-rate mortgages, it will likely take five to six interest rate hikes to bring their rate “on par” with a fixed rate they would have locked in on Day 1s. they had chosen this path.

“It’s not something to worry about,” Collins said, noting that even if a customer gets bored, they can still “pivot” to a fixed-rate mortgage.

What is certain is that those who have not yet entered the housing market will probably feel the greatest pinch, according to Piriano.

First-time home buyers tend to be younger and tend to have lower salaries, while those who already own their homes have likely built up equity and their mortgage is lower than the value of their home.

But for Toronto writer Mary Jennifer Payne, who hopes to buy a home in Hamilton, the situation has become precarious. Even with a condo that has raised a “good amount of equity” under its belt.

Payne said her condo requires renovations before the sale, which are not only expensive, but will also take time. With prices in Hamilton rising every month (she started looking last year) and with rates set to climb, she said a move seemed “less and less feasible.”

“I’m already in the market, which is a better position,” Payne said. “But I’m a bit shocked that it really seems like I probably can’t own a house there.”

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