Do Higher Interest Rates Impact Housing Prices?

Do Higher Interest Rates Impact Housing Prices?
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With Canadian Interest rates having gone up this year already, the question on everyone’s mind is likely to be how this is going to affect their various loans, credit sources and even future major financial transactions? Subsequently, how do these higher interest rates impact housing prices?

With higher interest rates, one immediate response to the housing market will be that it will affect mortgages. As home owners look to secure new financing, they will see higher monthly payments as a result, especially if they have been carrying a fixed rate mortgage.

Perhaps the less clear question however, is how house prices will specifically be affected? Will they increase or decrease as a result?

Typically, higher interest rates may impact housing prices in terms of completely cooling them down, however is this the case for all housing markets? Perhaps there are other factors that can lead to the specific degree that the interest rates will impact these markets.

With that being said, one current perspective is that they will in fact decrease. This however, may be more of a given in a housing market that can be described at ‘normal’ and since what’s been happening in the Canadian housing market as of late, is far from the norm, will this actually be the case?

Ultimately, since interest rates have gone up, this does point to the national economy growth that we have seen recently. Since this is a return to more normalcy, perhaps then the housing market will also start to balance itself.

While differing opinions certainly exist in this scenario, for the most part, many experts believe that Canadian house prices won’t experience as many gains as it did over previous months, however it is excepted to slow down. With the average price of homes in Canada already cooling down since before the increase, however still rather high, this could be a direct result of the higher interest rate we saw last month.

Other possible contributors to the housing market slow down include, the foreign buyers tax which was announces in April, as well as the stricter mortgage rules which may have deterred some homebuyers from making these purchases as well.

It is also speculated that major cities like Toronto and Vancouver may not be affected as much, however other housing markets across Canada may feel the impact of higher rates a little more drastically.

As mentioned, higher interest rates may impact housing prices, and in ‘normal’ housing conditions, they may impact them to a greater extend, however these are not ‘normal’ times were are dealing with.

While this doesn’t necessarily mean that this will impact the housing market as dramatically as some way have thought, at least in the short-term, however more long term affects may occur, especially if the interest rates grow again this year or sometime in 2018.

With further interest increases, current home owners and potential home buyers could feel these affects to a greater extend. In terms of more expensive mortgages as well as increased overall debt.

If you have been struggling with personal debt and are managing various loans, then paying attention to how the interest rates impact your finances, will be of great importance to you moving forward. If you are a current homeowner or a potential home buyer, this will impact your life as well.

With one interest rate increase already, paying attention to the signs that another one may be occurring sometime soon, will also be something worth watching for.




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