The Bank of Canada has raised its key interest rate by half a percentage point as it tries to further tame decades of high inflation.
Since March, the central bank has raised its main lending rate to 3.75 percent from 0.25 percent, making it more expensive for Canadians to borrow money.
The latest increase did fall short of some economists and market expectations, but local experts believe it provided some comfort for Canadians. The announcement has an immediate impact on people with mortgages, loans and potential homeowners.
“I was a little surprised. I expect, like many, a 75 basis point increase, 50 basis points is a slowdown in rate hikes. It's less than I expected, especially given the report we've just seen on inflation," said economist Jason Childs.
“Inflation is falling, but core inflation, excluding food and fuel, is starting to show strength. So in the face of that, I expect another aggressive move from the Bank of Canada.”
Experts said the bank expects it will need to raise interest rates further as it continues efforts to fight rising inflation. He expects inflation to return to its 2.5 percent target by the end of 2024. Pressures on rapidly increasing borrowing costs have weighed on households in Saskatchewan.
Childs says that if you have debt, more of your monthly payments will pay off your interest and less of your principal. "For example if you have a mortgage of around $500,000 then this latest increase will cost you about $120 per month," he said. "If you have a variable rate mortgage now, that's very successful."
While interest rates are rising, Chris Guerrette of the Saskatchewan Realtors Association said Saskatchewan still has the most affordable housing rates compared to other countries.
"We haven't experienced the drop in house prices like every other region of the country has experienced, so we're in a bright spot there," Guerrette said.
“Nonetheless, this is still a challenge for those looking to break into the housing market or those renewing their mortgages.”
Guerrette said a seller's market still exists in Saskatchewan due to inventory and labor shortages.
“We saw sales decline. However, we also see that this is more of a sign that our inventory is very low, not necessarily because of interest rates," Guerrette said.
“Of course interest rates have an impact, but we are also still very concerned about our low inventory count.”
Labor shortages mean that builders may not be able to bring the right number of housing units to market to meet demand.
"If builders have a hard time bringing housing to market, if there's not enough workforce out there, then that has a direct impact on real estate and housing," he said. “And on top of that, every time we bring workers into the province, they need a home. So we have a province right now that is very focused on tackling this particular challenge.”
Guerrete said that rising interest rates affect renters as well as if it costs more to supply housing. That means income must be increased in order to provide these houses.
When asked if now is a good time for people to buy real estate, he said it depends on your financial situation as a professional, your vision for your family and the goals you have for yourself.
“This needs to be a personal decision and individuals need to surround themselves with the right experts, find the right attorney, the right accountant, if that's what you need, the right broker, and surround yourself with lots of experts who can help you. make the best possible decisions."
As far as what you can do to prepare for an economic downturn in an already challenging situation Childs says saving money and being aware of where and how you spend your money is the best way forward.
“It will be very challenging. You have to think really hard about every purchase you make and we haven't done that in a long time."
He added that debt could be a dangerous debt or it could be a strong and useful debt. “Almost no one buys a home without a mortgage and there are good reasons for that. You are buying an asset that will have value over time. That said, using debt to pay for everyday purchases or purchases that don't last long is a bad proposition. That's a great way to get yourself in trouble."
Childs says saving is much better now than it was two, three, four years ago. You can actually get positive interest rates. “So you have more firepower from risk-free savings or low-risk savings that will help you in the long run. But it will be miserable in the short term."