how interest rates affect home values

How Interest Rates Affect Home Values

Many factors go into buying a home: location, price, features, distance from work, and proximity to amenities are just a few. While interest rates may not always be top of mind, they too play a substantial role. For years now Canadians have enjoyed low interest rates, which is one of several reasons why the current real estate market remains so hot. Read on to learn more about how interest rates affect home values.

Low Interest Rates Spur Greater Interest In Buying

how interest rates affect home values

When interest rates are low, there is a much greater interest in buying. Renters may find themselves thinking about home ownership for the first time and entering the market because financing a home purchase is suddenly feasible. For homeowners who are looking to upsize and gain more square footage or property, great rates are often an added incentive. They can relocate, buy a larger home or one that better meets their needs. The Bank of Canada has left its key interest rate at 0.25 per cent, an historic low, since March of 2020. This softening was intended to help bolster the economy as we dealt with the pandemic, and it has proven to be a real boon to homebuyers.

Higher Interest Rates Reduce Your Buying Power

how interest rates affect home values

When interest rates are higher, your buying power is reduced. When applying for a mortgage you may qualify to borrow less than you would if rates were lower. Higher interest rates also affect the affordability of the home itself; because the cost to borrow money is higher, you’ll be paying more monthly. We are all sensitive to higher interest rates and when borrowing costs do rise again, more of our incomes will be going towards mortgage payments. To continue taking advantage of low rates in the future, consider a fixed-rate mortgage with a five-year term.

Current Interest Rates Make Home-buying More Achievable

how interest rates affect home values

Interest rates are at a current historic low and they are forecasted to remain that way into 2023. This has made home-buying more achievable for a lot of first-time buyers. Last fall, a report published by Scotiabank found that low interest rates are a motivating factor for many millennials to get into the housing market. Eighteen percent of Canadians aged 18-34 reported that their plans to buy a home had been accelerated. Housing has never been in more demand across the country, and low interest rates are definitely a driving factor.

Understanding the role interest rates play in buying a home is important, as a well-timed purchase can save you a lot of money over the course of your mortgage. Thanks for reading and be sure to follow along with the Caliber blog for more home-buying tips and advice.