Recent events have tested the housing market not just in Red Deer and its neighbouring areas but also in the whole country. 

  

There is the global pandemic, inflation, continuous rising cost of construction materials, and the rising interest rate on top of it all.

 

   

While the intention of the Central Bank in increasing the interest rate is to cool the economy so that it doesn’t overheat with the rapidly increasing cost of living, many potential home-buyers are now reconsidering their decision.

   

The Canadian economy is growing rapidly and the country's unemployment rate sits at a historic low of 5%. That's why the Bank of Canada continues to use interest rates as its primary tool for managing growth and inflation.

  

According to a recent RBC analysis, the Bank of Canada's quick rate hikes has resulted in a 12.6% reduction in house sales throughout Canada between March and April.  

By historical standards, the rates are still exceedingly low. However, Canadian first-time home-buyers will still feel its impact. Therefore, you need to learn how this situation affects you.  

Let's dive into this important topic of rising interest rates and see how they could affect your bottom line as a homeowner or potential homeowner:  

 

Here are some things you can do amidst the rising interest rates   
 

If you're interested in buying homes in Red Deer or other Central Alberta areas, be sure to know what the difference between fixed and variable mortgages is, so you can make an informed decision.  

As explained by Realtor.ca, fixed rates tend to mirror the bond market in Canada, and rise as the yield increases. Variable rates, on the other hand, are tied to the prime rate, which is based on the BoC's overnight rate.  

The interest rates for fixed mortgage holders started increasing in the fall of 2021 while variable rate holders started noticing their rates rise in March of this year. Historically, variable rates are cheaper but it doesn’t necessarily mean it is what works best for you.   

If you want to sleep comfortably at night and not be stressed out with the next upcoming announcements this 2022 will affect your monthly payment, then you may opt for a fixed rate.   

Now more than ever, first-time homebuyers in Red Deer should meet with their local real estate and mortgage experts to help them understand more the impact of the rising interest rates.   

They will help you understand the impact of rising interest rates based on your objectives, including how long they plan to live in the home, how much payment flexibility they want and how expensive a home they can afford.  

If you want to buy a home in Red Deer, Central Alberta, or anywhere in the province, get pre-approved. Pre-approval is nothing more than locking in at today's rate while you shop for a home and be ensured you can comfortably afford your monthly payments.  

You also need to stress test your budget.   

When mortgage rates rise, borrowers’ ability to get qualified for a mortgage is affected, factoring in the stress test and the types of mortgage rates.   

As reported by Realtor.ca, Reza Sabour, a Vancouver-based senior mortgage advisor said we have a unique situation where the stress test is different for a variable-rate borrower versus a fixed-rate borrower.  

In today’s rate normalization, mortgage borrowers need to consider whether they can afford a higher monthly payment when it is time to renew their mortgage contracts. Buyers and sellers alike should plan ahead and stress tests their budgets.  

It is advisable to take advantage of the decrease in buyer competition that accompanies a rise in mortgage rates. As more buyers opt to sit out of the market, properties will become less desirable, and sellers may be more willing to negotiate with potential buyers who have carefully weighed their options and are committed to buying.  

One important thing for Central Alberta market consumers to recognize, however, = is that the market cooling off is primary to larger Canadian markets including Ontario, Toronto, and Vancouver. That’s where things have really got heightened and they are trying to pull back the marketplace. 

In Alberta, we are kind of in an anomaly where we have an interest rate that will slow down some consumers but we still have all-time high oil and gas prices, migration, and job creation, not only in the oil and gas sector but also in other sectors such as the technology companies that are taking advantage of the fact that Alberta is still on sale.  

Even though markets in Central Alberta are experiencing somewhat downward pressure, migration, lack of inventory, and strong oil and gas markets create stability outside of what is happening in the rest of the economy. We are in a unique situation compared to other locations in Canada. 

With an interest rate increase imminent, many people will be watching the Canadian real estate market with interest.  

If you’re looking for more insights on interest rates and how they can impact you, our real estate agents can help you.