Canada’s highest key interest rate since 2001: How will it impact the market?

By Ani Imastounian

The Bank of Canada has recently implemented a quarter percent hike in its key interest rate, signaling a potential series of rate hikes in the near future. This decision comes as a response to an unexpectedly hot housing market, fueled by a surge in demand and limited housing supply, which has raised concerns about inflated property prices.

How will this impact the already fragile market, and what will be the implications for housing demand? While a quarter-percent increase may not appear significant at first glance, it is likely to impose a temporary hold on the rising home prices. Moreover, predictions from BMO (Bank of Montreal) regarding further rate hikes are expected to dampen the heated market. Economists from TD Bank and RBC (Royal Bank of Canada) have echoed BMO’s stance, suggesting that additional rate hikes may be on the horizon this summer unless the Canadian economy shows signs of cooling off.

James Laird, co-chief executive officer of and president of CanWise Mortgage Lender, stated, “Those with a variable-rate mortgage and home equity line of credit (HELOC), who are already fatigued by rate hikes, will experience a further increase in their interest rates.” Laird added, “Those with fixed payments on their variable-rate mortgage will likely surpass their trigger rate if they haven’t already. Meanwhile, those with variable payments will see their payments rise to absorb this rate hike.”

According to’s calculations based on market rates for homes and variable mortgages in April, the average homeowner’s payment on a five-year variable-rate mortgage will rise to $4,173 following the recent hike, up from $4,075. Additionally, fixed rates had already begun to increase before the central bank’s announcement and are expected to rise even further due to “bond yields, which are at their highest point since 2007,” as noted by Laird.

Substantial immigration numbers and work permits will further contribute to housing demand. As the government maintains its policy of welcoming a significant number of immigrants and issuing work permits, the housing market can rely on a steady stream of potential buyers. Furthermore, the current record-high homeowner equity, which has reached 76.5 percent with an increase of nearly five percentage points from the fourth quarter of 2018, provides a reassuring cushion for those who purchased homes before the recent price surge.

In the present market, buyers with substantial capital are expected to dominate, actively participating in real estate transactions. Additionally, the pressure on the rental market will be intensified. With the influx of immigrants and the granting of work permits, the rental market will face increased demand, resulting in sharp rental price increases and making it more challenging to find affordable housing options.