Interest rates to remain at historic low until July

As the Canadian economy continues to strengthen and the resulting inflation that comes with that growth develops, it is really just a matter of time before the Bank of Canada (BOC) must increase interest rates. We all know it will happen ... the questions is when? 

Last Tuesday the Bank of Canada pledged to keep their benchmark lending rate at 0.25 percent at least until July if inflation remains below 2 percent.  A little optimistic I'd say as our economic growth repeatedly continues to exceed forecasts and expectations over these past few months.  If this trend continues a rate increase before July becomes very likely.

What does this mean for the Vancouver real estate market?  Higher interest rates means fewer first time home buyers will be able to afford a home and will have to delay entering into the real estate market until the market dips again or their personal economic situation improves.  For those that already own homes the cost of servicing or refinancing their mortgage will increase so they will be paying more interest and less principle on the loan.   

As a large portion of the sales activity that has occurred in the last 12 months is due to first time home buyers capitalizing on low rates we can expect sales volume to decrease as rates increase. As long as the reduction isn't dramatic this could be beneficial to the overall health of the Vancouver real estate market as we will enter into more "balanced" sustainable conditions.

Rest assured the BOC is well aware of what could happen if interest rates were increased too quickly. We can expect slight to moderate increases over the next few years to keep inflation in check and consumers spending but even with these increases rate would still be at historically low levels.   

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