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January 17, 2024 in Finance

The Impact of Interest Rates and Economic Factors on the Housing Market in Canada

According to real estate market statistics, home ownership in Canada currently stands at 66.5 percent. A significant percentage decline when compared to a couple of years back. That’s a clear indication that the variation in interest rates and economic factors have played a crucial role in the Canadian housing market – for both commercial and residential properties.

Owning a home is a significant investment. Whether a first-time purchase or a regular investment option, acquiring property requires excellent planning and financial commitment. While some opt to buy their homes on a one-off payment, many turn towards mortgage loans to finance their homes and make their dream a reality. 

Canada’s housing market, however, has been subject to frequent fluctuations, becoming a topic of discussion due to increased rates and various economic factors affecting the market. These factors, in turn, impact homeowners negatively with higher mortgage rates and home prices. We understand how high interest rates from traditional lenders can inconvenience your path to home ownership. 

At Quick Loans Canada, we’ll listen to you and offer a custom solution. That is; a secure quick loan, a first-time mortgage, a second mortgage, or a secured consolidation loan to get your home ownership dream going. 

In the meantime, keep reading to learn more about how interest rates and economic factors impact the Canadian housing market. In addition, how we can get you started with a secured home mortgage.

Interesting Statistics on Mortgage Rates and Housing Market in Canada

Before we start, here are some interesting facts and statistics highlighting the impact of interest rates on the Canadian housing market.

  • Canadian mortgage holders today are experiencing the fastest rising and highest interest increase rates in decades.
  • The Bank of Canada has kept the interest rate steady at 5 percent to curb runaway inflation, directly affecting mortgage rates.
  • Increased mortgage rates will cause a drop in home demand, forcing home prices to drop over time.
  • When the Bank of Canada adjusts its overnight lending rate, mortgage holders with an adjustable-rate mortgage will increase their interest, forcing them to pay more for their homes.
  • Mortgage holders with a fixed-rate mortgage may get payment shocks once they renew their mortgage with adjusted market rates.
  • Over two million fixed-rate mortgage holders who secured low-interest rates between 2020 and 2021 will experience payment shocks in 2024 and 2025 when they go for refinancing, representing nearly half of the outstanding mortgage holders in Canada.

The Impact of Interest Rates on the Housing Market in Canada

Expect Variation in Demand and Supply

The Bank of Canada policy rate and bond yields play a significant role in determining the interest rates and the overall home prices in the real estate market. When interest rates are lower, homeowners get encouraged to enter the market and secure mortgage loans. 

More so, affordable mortgage loans encourage homeowners to seek refinance options, freeing their funds for other investments. Lower interest rates also cause a surge in demand for cheaper homes, pushing higher market prices.

It Affects Home Prices Significantly

Higher mortgage rates make home loans expensive. This deters prospective homeowners from venturing into the market, causing an overall decrease in demand for homes and, consequently, significant price drops in homes. Higher interest rates discourage homeowners from seeking refinance options, making it harder for homeowners to spare funds for other obligations.

Fluctuated Mortgage Payments

Fluctuations in interest rates also impact those already in the market. Mortgage holders with variable-rate mortgages are directly affected by the Bank of Canada’s overnight policy rate as their bank adjusts their rates. While fixed-rate mortgage holders don’t experience direct interest changes as their variable-rate counterparts, they may experience payment shocks once they refinance their mortgages.

The Impact of Economic Factors on the Housing Market in Canada

Effects on Inflation

When inflation rises, the government adjusts interest rates to mitigate it, causing a subsequent rise in mortgage interest rates. On the other hand, a drop in inflation would see relaxed interest rates, which would translate to cheaper home loans.

Effect on Population Growth

Canada’s population has steadily risen over the years. Despite this growth, the Canadian housing market has struggled to keep up with the rising population, causing a demand-supply imbalance. Increased demand pushes home prices higher.

Effect on Government Regulations

Government policies can have a significant impact on the real estate market. For instance, tighter mortgage policies can discourage potential homeowners from securing a home loan. On the contrary, loosened regulations may encourage homeowners to go for mortgages.

Variation in the Costs of Construction

Construction costs also impact Canada’s housing market. Increased construction costs deter contractors from building more homes, causing a housing shortage and making homes more expensive.

The Employment Situation

Employment rates contribute significantly to the housing market. Higher employment rates would translate to higher purchasing power, increasing demand for homes. Reduced employment rates reduce demand for homes, pushing the price of houses down.

Depend on Quick Loans Canada for Excellent Mortgage Loans

Securing an affordable mortgage loan for a home you’ve always wanted in Canada can be challenging. We’ll make it easier to get you started on your home ownership journey here at Quick Loans Canada. While other financial institutions insist on stringent policies, we offer secured and unsecured quick loans without solely depending on your credit score. 

Are you looking for a second mortgage loan or extra funding for some home improvement? We also offer second mortgage loans with more relaxed rates that help you finance your home quickly. Our guaranteed second mortgage loan enables you to finance your home with little or no down payment, leaving you with more money in your pocket. 

All you need is to start the application right away; we will sort you out quickly. Please visit us today and become one of the thousands of Canada’s satisfied customers.

The Takeaway

The Canadian housing market has evolved, bringing a lot of confusion to potential homeowners. Why? Interest rate changes can spur demand for new homes or deter potential homeowners from securing home loans. Factors such as population growth, construction costs, or government policies also affect the real estate market. 

We have established ourselves as a reliable institution providing homeowners with affordable mortgage solutions – we are a go-to option for Canadians with not-so-good credit scores. Apply now to kick-start your journey to owning a home now.

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