Bank of Canada rate hike can quickly in­flu­ence con­sumer be­hav­iour

Realty Classifieds - - FRONT PAGE - By Alexan­dra Posadzki,

Toronto: Tarek Mnaimne has been con­sid­er­ing dip­ping his toes into the Cana­dian real es­tate mar­ket, par­tic­u­larly in Toronto or Mon­treal, but the rate hike from the cen­tral bank is giv­ing him pause. “It just doesn’t look as at­trac­tive as it used to,” says Mnaimne, a Cana­dian ex­pat cur­rently work­ing in Kuwait City as an in­vest­ment an­a­lyst. Mnaimne, 29, is look­ing for an in­vest­ment prop­erty, one that will ap­pre­ci­ate in value over the next five or 10 years, and the ex­pec­ta­tion of fur­ther rate hikes from the Bank of Canada is mak­ing him re­think his op­tions. “Valuation-wise I’m not sure if it looks as at­trac­tive as it used to,” says Mnaimne. “The fact is I’m con­sid­er­ing sev­eral mar­kets. So when you compare ap­ples to ap­ples, Europe is priced much bet­ter right now.’’ Mnaimne’s de­lib­er­a­tions il­lus­trate the ways in which the Bank of Canada’s bench­mark in­ter­est rate has the power to in­flu­ence con­sumer be­hav­iours. The cen­tral bank lifted its key in­ter­est rate Wed­nes­day for the first time in seven years, push­ing it to 0.75 per cent from 0.5 per cent. Canada’s five big­gest banks quickly fol­lowed suit, an­nounc­ing they were in­creas­ing their prime lend­ing rates by 25 ba­sis points. Royal Bank of Canada, the Bank of Mon­treal, TD Bank, Sco­tia­bank and CIBC are all rais­ing their prime rates to 2.95 per cent from 2.7 per cent, ef­fec­tive Thurs­day. The prime lend­ing rate is the rate that banks use to set in­ter­est rates for vari­able-rate mort­gages and other loans. Back in 2015, when the Bank of Canada twice cut its bench­mark in­ter­est rate by 25 ba­sis points, the banks passed along only a por­tion of the sav­ings to con­sumers, cut­ting their prime rates by only 15 ba­sis points each time. But now they have passed along the full in­crease to con­sumers in a bid to pro­tect their lend­ing mar­gins, which have been un­der pres­sure in re­cent years. Al­though higher mort­gage rates could dis­suade some would-be buy­ers, the pres­i­dent and CEO of real­tor Royal LePage says the im­pact will be min­i­mal. “It does raise the cost of a home, be­cause most peo­ple buy homes on car­ry­ing cost, not on sticker price,” said Soper. “But it’s very mi­nor and it’s been priced into banks’ risk mod­els for sev­eral years now.”

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