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Will recent interest rate hikes affect the real estate market?

It looks like a primary factor in determining a home's affordability is about to change. With the economy booming and our strong Canadian dollar moving ever skyward, the Bank of Canada has been warning for some weeks now that their next move could be to raise interest rates. The predicted rate hike materialized on July 10, when the Bank Rate increased by one-quarter of a percentage point to 4.75%. That means Canadian consumers can expect to see similar increases in other lending fees, including mortgage rates, in the near future. What's more, the Bank of Canada has indicated that another rate increase could be coming when rates are next posted on September 5, 2007 , just a few short weeks away. This week's increase is the first jump in the lending rate we've seen since May, 2006, over a year ago. It seems that we may be coming to the end of one of the longest periods of stable interest levels seen in this country since the 1970s.

So, what does all this mean to the Canadian consumer and today's booming real estate market? Well, according to the Canadian Real Estate Association (CREA) house prices will continue to rise this year, but the rate at which house values appreciate may start to slow towards the end of the year. For a time, we can expect that house sales activity will remain brisk even when the inevitable increases in mortgage rates are first announced. This activity will be due in part to the many prospective buyers out there with pre-approved mortgages. They'll be motivated to commit to a purchase so they can take advantage of their rates.

If you're a buyer, and you don't already have a pre-approved mortgage, this would be a good time to arrange one and lock in an attractive rate. Mortgage rates are due for a hike and if that happens, the result will be that housing becomes less affordable. The good news is, you may be able to beat the rate increase – and future increases -- if you act now. With an additional rate hike possible for the first week of September, and prices still on the rise, a few buyers – particularly first-time buyers with no equity behind them – may ultimately be ‘squeezed out' of the market if they don't move quickly. The remaining buyers can expect to be rewarded with more homes to choose from. And there should still be an opportunity to build equity as home prices continue their upward climb.

If you're a seller, you're still in a good position with values expected to continue to appreciate. However, while sales should remain strong for a while yet, you'll eventually start to see the signs of a moderating market. There will tend to be more inventory of listings, fewer buyers and homes will be staying on the market longer. The competition will become fiercer and you'll need to compete more effectively to attract buyers to your listing and win offers on your property.

There's a lot to consider in today's changing real estate market. Trends can vary from market to market, and even within the same neighbourhood. If you'd like some expert advice on competing in your local market, please contact me at http://www.epsteinrealestate.com

In addition, if you have any general questions about buying or selling real estate in Ontario, please contact me as I'm more than willing to help.

Published Thursday, July 26, 2007 9:33 AM by Jordan Epstein

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