Interest rate hike could affect real estate market

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Houses are taking longer to sell

There are several indications that point to a rise of interest rates, investors are betting on Bank of Canada Governor Stephen Poloz raising the interest rates.

On July 12, Canada’s central bank will announce its latest decision on where to place its trend-setting interest rate, which has an impact on the rates that Canadian borrowers and savers get for their bank accounts, mortgages and other products.

The earlier intervention by the government and the foreign tax had earlier started to have a dramatic cooling effect on the housing market.

Suddenly there are more houses on the market with ‘For Sale’ signs humbly indicating a reduced selling price, a stark contrast to a few months ago when every home sale involved a bidding war and homes being sold thousands of dollars over the asking. Now buyers are lucky if they can get a more modest price for their homes.

In an interview with Can-India, well-known and highly successful realtor Sam Mcdadi who was the one who popularized the concept of bidding wars for luxury properties said that many buyers and sellers were in a wait-and-watch mode. Mcdadi isn’t using that strategy for luxury homes today given the current scenario. “Earlier buyers were afraid of being shut out of the market given that prices of homes were rising at an exponential rate, that was not healthy. A 3 to 5 percent annual increase is sustainable, not 30 percent,” he said.

While many investors holding several secondary properties are spooked by the lowered rate of returns on their investment properties, they are also concerned about the rising cost of their mortgages.

McDadi thinks that the timing of the government intervention was wrong. “Spring was a bad time to do it because many who planned on selling in spring either can’t sell or are forced to discount the price. Others who signed on to buy at the height of the boom are questioning their decision and some aren’t closing the deal,” he said. According to McDadi if it was done at the end of summer most of the closings would have been done, there would be no issue.

The market will recover but it is likely that the crazy bidding wars that were a phenomenon not so long ago may be a thing of the past… for now.

Meanwhile many are looking forward to news of the interest rate hike with nervous anticipation. – CINEWS

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