How Will The New Interest Rate Affect Peterborough Real Estate?

Every few months, the Bank of Canada makes a new announcement regarding interest rates. Even a small increase or decrease can cause a ripple effect across the entire economy, especially as it pertains to the real estate market. Just ask anyone who has bought or sold a house over the last few years!

Why would any public institution rock the boat this way? There could be any number of reasons, to combat inflation, to spur economic activity, or to bring stability during a time of uncertainty.

In this post, we’ll do a deep dive into changing interest rates and how they intersect with Peterborough real estate.

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Policy Interest Rate Versus Bank Rate

While a discussion about interest rates isn’t exactly exciting, these fluctuations can impact your decision to purchase or sell a home. With that in mind, let’s start with a quick background as to how and why these rates are set in the first place.

There is a difference between the policy rate (also known as the target rate) and what you might pay if you take out a loan or a mortgage. To keep it simple, the policy rate is what the bank uses to determine how much interest they pay on your savings accounts or how much they charge when you borrow money.

When rates increase, people with money in the bank rejoice as their funds grow. Anyone applying for a mortgage will feel the pinch.

When rates decrease, those with substantial savings are less thrilled as their earnings slow down. However, people applying for a mortgage are thrilled as it costs less to borrow funds.

Policy rates by the Bank of Canada primarily influence variable-rate mortgages. Fixed-rate mortgages are tied to government bond yields. They might hold steady while policy rates rise and fall. More often than not, however, they work in tandem. It just goes to show you how interconnected all aspects of the economy can be.

Knowing the details can help you make better decisions when buying or selling Peterborough real estate. The posts below can get you started:

Are These Changes Good Or Bad?

That depends on your perspective. Whenever the market shifts in any direction for any reason, some people take a hit and others benefit. In general:

When interest rates rise, housing prices decrease.

Falling prices aren’t the best news for someone selling their home. The situation can be even more painful if the homeowner received a higher valuation a few short months ago. Now, they’re faced with the prospect of earning less for no reason other than the market has shifted.

For a buyer, a rate increase can be both advantageous and disadvantageous. Lower prices work in your favour, if only it weren’t for higher interest rates that actually increase your monthly payments. On the plus side, many competing buyers will bow out, which means fewer multiple offer scenarios.

There is one clear winner when rates rise: the buyer who does not need a mortgage, like a long-time homeowner who is now downsizing to something less expensive. With enough equity, they can buy their next property outright. Prices are down, which means they pay less, and high interest rates don’t even cross their minds.

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Low interest rates can trigger demand and higher prices.

The lower the rate, the less it costs to borrow money. Those who previously thought they couldn’t afford to buy a house start exploring their options. As a result of the influx of activity, housing prices rise, sometimes dramatically.

At first glance, anyone selling a home benefits. But once again, there’s a little bit of fine print. You might sell your home at a record profit. Before the celebration starts, remember that you also have to buy a new home. A hot market might not be so easy to navigate this time around.

The clear winner in a time of low interest and soaring prices is the home seller with no intention to buy. They may plan to leave the city or become a snowbird in another country.

Others may stick around and rent instead of buying a new house. They might be indirectly affected by interest rates. Anything that causes a landlord’s expenses to increase will eventually trickle down to the tenant. Nevertheless, all the proceeds from selling a house at top dollar will cushion the impact.

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Should You Try to Time the Market?

Selling at the absolute highest possible amount and buying when prices reach their lowest peak is the best-case scenario anyone can ever hope for. However, when it happens, it’s often by coincidence and good luck rather than careful planning.

The reason is that no matter how well-informed, insightful, and experienced an expert might be, no one can actually predict what the market will do. By carefully analyzing past data, we can get pretty close, but it’s impossible to deliberately time the peaks and valleys.

What you can do is use up-to-date information to make whatever the current market is doing work to your advantage as best as you can.

Imagine you are selling but conditions are soft and buyers are taking their time. Stunning preparation can make your home stand out, giving you an edge against competing sellers, while a compelling yet fair price point tips the scales even further in your favour.

You may not earn as much or sell as fast as you would in a seller’s market, but you’ll still get the best possible results for the situation. Even better, you’ll get to buy in a market that does favour you, so your timing will be ideal on at least one side of the transaction.

When buying in a seller’s market, you may need to contend with high prices and steep competition. You are at somewhat of an advantage if you have an existing property to sell and are in the midst of upsizing or downsizing. The proceeds from a record-breaking sale on that side of the transaction will make your next purchase bearable.

High prices, changing interest rates, and a challenging market can be especially daunting for first-time buyers. Fortunately, all is not lost. Check out the resources below:

A Word of Advice for First-Time Buyers

First-time home buyers often struggle more than someone with years of equity behind them. If interest rates or prices are on the rise, the temptation might be to wait it out, but that path also involves some risk. What happens if prices keep rising as they tend to over the long term?

Getting into the market as early as possible allows you to begin growing your equity so you can take advantage of that long-term appreciation. This advanced real estate concept is called “time in market”, and it almost always beats trying to “time the market.”

Once you take that first step on the property ladder, more opportunities will soon open up to you. With relatively affordable real estate options and a fantastic quality of life, Peterborough is a great place to put down roots wherever you are starting from!

Whether buying or selling, our Peterborough real estate agents are committed to supporting you every step of the way. Reach out to team@jeffandkatie.ca or call 705-243-9797 to learn how we can help.