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Interest rate hikes in the Tri-Cities: Here's how you could be affected

Are you worried about interest rate hikes? If you're a home owner, seller or buyer, here's how the recent half-point interest rate hike could affect you.
Coquitlam housing
Don't expect prices to drop too quickly, despite an unprecedented second half a point interest rate hike, says an economist with the BC Real Estate Association.

No one was too surprised when the Bank of Canada hiked interest rates last Wednesday (June 1) for the second time in as many months.

But back-to-back half-point rate hikes to stem inflation are still rare, with more expected to come. The impact is expected to slow housing sales in the Tri-Cities in the coming months.

Everyone is waiting for the next shoe to drop, says Eddie Cocciollo, president of Dominion Lending Centres, who has an office in Port Coquitlam.

He said he couldn't predict when the next rate hike will come and what it would be, but believes the Bank of Canada has an aggressive plan to bring inflation down from 6.8 per cent to a "neutral" two per cent.

"It's anybody's guess but the pressure is on, it looks like the Bank of Canada, is not shying away form being very 'hawkish,'" said Cocciollo.

Those with existing mortgages might not feel the pain so much, said Cocciollo, because there are things banks can do to keep payments the same, while accommodating higher interest rates, mostly by reducing the amount being contributed to the principal.

There are dangers however, if the balance is more than the home is worth, but lenders will raise payments before negative amortization occurs.

Here's how a half-point increase affects your mortgage

Generally, every half point rate hike equals $60 for every $100,000, Cocciollo said, so someone with a $500,000 mortgage could conceivably face a $300 monthly additional payment with the latest interest rate increase. 

"That’s a guesstimate," he said, noting that the impact depends the amount of the mortgage, amortization and payment frequency.

Also affected are home buyers, said Cocciollo, who explained that a half point boost to the interest rate reduces buying power by 12 per cent.

"If you had that dream home and they're asking for $1 million and you now only qualify for $900,000 — you're out," he said.

Buyers are likely to wait to see if home prices come down before getting into the market. 

"As a purchaser you are going maybe wait, if rates rise maybe those prices are going to come down."

With higher interest rates, home sellers are likely to take their home off the market if they aren't getting the offers they want.

B.C. home buyers will wait, sellers will take listings off the market 

In the short term, many will likely wait to see what happens to the interest rate over the next few months.

Cocciollo said he expects the dust to settle once the market factors in the changes.

In the meantime, he said, only people who have to sell — such as those involved in an estate sale or people in the midst of a divorce — will list their properties.

"Buyers are waiting, sellers are waiting, the only ones that are transacting are the ones that have to," he said.

Already there is a sign of a slow down. Real estate sales in Greater Vancouver dropped more than 30 per cent last month compared to last May, and listings have dropped 10 per cent since last year, too.

As a result, the Tri-City real estate market is already adjusting to the anti-inflationary move, with house prices dropping slightly in Coquitlam and Port Coquitlam.

Port Moody, was the lone hold out, with prices actually increasing in May, according to a data released by the Real Estate Board of Greater Vancouver.

But don't expect any big downturn in price, says the chief economist with the BC Real Estate Association.

"Markets are adjusting to a much different interest rate environment than like anything we have seen in the past decade. As a result, sales activity in the Lower Mainland has declined, albeit from a very high level in the first quarter of 2022," Brendon Ogmundson told the Tri-City News.

Historically, it takes time for prices to react to government intervention into the real estate market, he said, citing the years 2018-2019 when sales declined 30 per cent due to Bank of Canada tightening and the federal mortgage stress test.

"But we saw only a muted and lagged response from prices as it took time for markets to have an excess of supply," Ogmundson noted.

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