Real estate experts say the decision by the Bank of Canada to hold interest rates at five per cent signifies stable – but elevated – borrowing costs for mortgage holders.

On Wednesday, the Bank of Canada elected to hold its policy rate at five per cent for the second consecutive interest rate decision. The pause follows a steep series of interest rate hikes that began at a low of 0.25 per cent in March 2022. 

Alana Riley, head of mortgage, insurance and banking at IG Wealth Management, said told BNNBloomberg.ca that the rate pause offers “welcome relief for Canadians.” 

“The decision by the Bank of Canada to keep interest rates unchanged can provide a sense of stability and assurance to both current and prospective mortgage holders, supporting a more predictable and sustainable environment for the housing market,” Riley said in an emailed statement.  

HIGH RATES ‘CUMBERSOME,’ DESPITE STABILITY FROM PAUSE

Riley said she expects Canadian prime rates will remain at 7.2 per cent in light of the monetary policy decision.

Despite the move to steady borrowing costs, Riley noted the current rate is still cumbersome to households and future rate decisions are data dependent. 

“(The) prime rate staying at 7.2 per cent is at its highest level over the past 22 years. This rate is burdensome to household cash flow for Canadians with variable rate mortgages, HELOCs (Home Equity Lines of Credit) and unsecured lines of credit,” she said. 

Daniel Vyner, the principal broker at DV Capital, told BNNBloomberg.ca on Wednesday that the elevated interest rate environment will affect people differently. 

“Many people, I think even after their sigh of relief, (will) realize that this seems to be the interest rate environment for the foreseeable future,” he said in a telephone interview.

Higher interest rates may be the new normal, but Vyner said that new normal may not feel “stable” to homeowners who purchased in a lower-rate environment. 

“Maybe from a real macro level, things appear to be stable from an economic standpoint, but if we're talking in the eyes of a homeowner or people that I'm speaking with on a daily basis, most people are not feeling or sounding too stable,” he said. 

INVESTOR, HOUSEHOLD IMPACT

Marie-France Benoit, principal and director of market intelligence at Avison Young, said Wednesday that the Bank of Canada’s decision provides more clarity on the trajectory of interest rates.

“Real estate investors can now look forward to more predictable financing conditions,” she said. 

RSM Canada economist Tu Nguyen said that with higher interest rates, households will have to allocate more of their income to housing. 

“When mortgage terms are up and mortgages get renewed at much higher rates, households end up paying much more for housing and thus are forced to cut discretionary spending,” Nguyen said in a written statement.

SHORTER TERMS POPULAR

Amid the current environment, Vyner shorter-term fixed mortgages are popular among clients. 

“The consensus is shorter-term fixed-rate mortgages, so they can re-evaluate and reassess the interest rate environmental in one or two years versus locking in for five years,” he said. 

SHORTER TERMS POPULAR

Vyner said shorter-term fixed mortgages are popular right now among clients who want the option to re-evaluate the interest rate environment in one or two years.

Leah Zlatkin, mortgage broker and expert with LowestRates.ca, said she recommends shorter-termed products to clients, noting that three to four-year fixed products seem to be the “sweep spot right now.”

“I don't know if two years is long enough to really get us out of this potential future recession that's looming,” she told BNNBloomberg.ca by phone.

“You want to make sure that you're going to get in when rates are low, so your renewal should be happening when rates have gone back down.”

IMPACT ACROSS MORTGAGE PRODUCTS

James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender, said Wednesday’s rate announcement will have mixed impact across different mortgage products.

“Those with a variable-rate mortgage or a home equity line of credit (HELOC) will be pleased that the (Bank of Canada) has held the key overnight rate, he said in a written statement. “However, these households will be feeling uncertain about how long rates will stay elevated.”

Riley said the rate decision will provide predictability for variable-rate mortgage owners because it means their monthly payments will remain at current levels, “relieving potential increases that might strain household budgets.”

“The impact on fixed-rate mortgages may be less direct, but this pause can indicate a continued period of relatively stable borrowing costs in the near future. This assurance might encourage more individuals to consider longer-term fixed-rate mortgage options,” Riley said.

Zlatkin said the rate pause is “extremely good news” for variable-rate mortgage holders, though she noted that the Bank of Canada might hike rates in the future.

Variable-rate mortgage holders who have been able to “stick it out thus far” should continue to do so if they can, Zlatkin said, so they may benefit when rates start to drop.

However, she advised that variable-rate mortgage holders who are having difficulty with payments should look at switching to a three-year fixed product.

HOUSING MARKET IMPACT

After the latest rate pause, Zlatkin said there could be real estate market opportunities for “savvy” buyers who have been sitting on the sidelines.

As more people have difficulty qualifying for mortgages, “what we're seeing is houses that are sitting on the market for longer than normal,” she explained. 

“Therefore, it is a buyer's market,” she said.

“You can really capitalize on that opportunity to get a house right now at a steal when other people may not qualify, and when sellers may be becoming desperate because they might be having payment issues themselves.”

Zlatkin thinks there could also be a rise in distressed sellers, though she said it is too early to tell how many.

Riley said the rate decision will provide stability for the housing market at large.

“It can encourage homebuyers to purchase without the concern of immediate interest rate hikes, thereby supporting housing market activity and overall economic growth,” she said.

Any accelerated activity in the housing market from Wednesday’s rate hold speaks to Canada’s tight housing market conditions, Vyner said.

“If people are now going to start flocking into the market because there wasn’t a quarter or a half a point interest rate increase, that kind of signifies how tight this market is to begin with,” he said.

Laird said the impact of higher interest rates is “becoming apparent” in Canada’s real estate market.

“Momentum in the real estate market across the country has slowed. Inventory is building, the number of transactions are decreasing and prices are softening,” he said.