What will higher interest rates do to Metro Vancouver housing?

Impending interest rate hikes may rein in inflation for household items but not for the massive inflation on our biggest ticket item -- housing. A B.C. affordability advocate says housing needs to be part of the inflation equation. Liza Yuzda reports.

The Bank of Canada has decided to keep its key interest rate as is, but potential increases in the months ahead could have some big implications for homeowners and first-time buyers.

The key interest rate has stood at 0.25 per cent for the majority of the pandemic, in response to impacts the health crisis had on the economy.

Many experts see rates rising through this year and the next, saying even though it didn’t happen on Wednesday, it’ll certainly happen in the months ahead.


Read more: Bank of Canada holds firm on rock-bottom interest rate


In Wednesday’s announcement, the Bank of Canada says overall economic slack has essentially been absorbed and it is now signaling a potential rate hike in March.

High debt loads

If the rate rises, people with fixed-rate mortgages won’t see an immediate impact. However, those with variable mortgages could see payments increase by hundreds, if not thousands, of dollars per year if the Bank of Canada increases its overnight rate by a quarter percentage point at a time.

Economist Marc Lee with the Canadian Centre for Policy Alternatives, a left-leaning think tank, is concerned with the number of households carrying a very high level of debt.

“You know that makes those particular households, if they have a high ratio of debt relative to their incomes, and a variable mortgage, then they are vulnerable to a cash-flow hit of interest rate increases,” he explained.

“But it really depends on what rate you got your mortgage at. I think there are opportunities right now for folks to lock in over a longer term. They’re not quite as cheap in terms of interest rates as they were a year ago, but you can still get a five-year mortgage and lock that down now before the rate hikes come into place.”


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He is among those who foresee the overall trend increasing in the months ahead.

Lee says mortgage rates typically follow the Bank of Canada’s trend setting on interest rates.

For those with variable mortgages, he notes the impact wouldn’t be dramatic to start because the bank’s interest rate bump is likely to only be about a quarter of a percentage point.

But a series of rate increases would add up.

“We have an economy right now that’s been very much flooded by cheap money — low interest rates — across the board, and I think that’s going to be changing, particularly since it’s had such an adverse impact on the housing market and other financial markets as well,” Lee explained.

Metro Vancouver housing prices

A hike in the overnight rate this spring would potentially mean a tougher time carrying mortgages for first-time home buyers. But on the other side of that, home prices in many markets may start to moderate.

Just how much an effect that would have in Metro Vancouver remains to be seen.

“The prices in Metro Vancouver seem to defy gravity year after year, but I don’t think they’re invulnerable to increases in interest rates,” said Lee. “Certainly, one to two percentage point interest rates is going to have an impact on the ability of households to borrow large amounts of money as debt to buy housing. I think the stimulus that’s led to the major double-digit increases we’ve seen over the past year — that’s going to diminish.”

Lee says first-time buyers should be cautious before making a purchase, noting there’s always a possibility they enter at the top of the market and a correction could follow.

Planning ahead means considering not just how much debt you can service and whether you can maintain that if rates go up, but also looking at your overall position in the market relative to where prices could be in a year or two, he adds.

Other economists feel there won’t be much price relief for Metro Vancouver because of the limited supply of homes for sale.

Lee notes one of the main challenges for first-time buyers in the region is that they’re competing with “very deep-pocketed investors.”

When it comes to those who are looking to get into the housing market for the first time, there has been some pessimism.

“There was upward pressure when discounted 5-year fixed was above 5% in 2007. Why would interest rates change anything when there is no meaningful increases in supply?” another social media user added.

“Many people are looking to buy but are not able to find a home without going way over asking price,” reads a separate tweet, detailing a family member’s experience trying to buy a home.

Earlier this month, a study from the BC Real Estate Association also noted a hike in interest rates likely will not bring prices down in Metro Vancouver, with the industry group citing supply once again as the biggest player.

“Supply has never been lower. So in that environment, to generate prices falling, you need a real surplus of listings over sales,” said BCREA senior economist Brendon Ogmundson.

The Bank of Canada’s next scheduled update on its overnight rate is March 2.

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