Rising interest rates....how does that affect housing in Alberta

Yes, mortgage interest rates are definitely on the rise. And experts like CIBC's Head Economist, Benjamin Tal, predict that this will be the end of rock bottom mortgage interest rates.

 How will this affect you (and ultimately the housing market in Alberta)?

*From the mortgage end of things, many people who could qualify to purchase a more expensive home (because of extremely low interest rates) will not be able to achieve a higher purchase price. For example, an interest rate of 2.99% may allow an applicant with their given income and debt to purchase a home worth nearly $335,000. A higher interest rate, of lets say 3.50% could lower that same applicant's purchase price to approx $320,000.

However, not all is lost. A recent article in the Globe and Mail pointed out, when mortgage interest rates go up, housing prices usually decrease to compensate.

*According to the Globe and Mail, the largest housing markets saw a 20-25% spike in housing sales as a result of low mortgage interest rates. All of this panic to purchase makes consumers forget that we are still receiving historically low interest rates. Just back in 2008, rates were around 5.79% on a 5 year fixed term. Home purchases will naturally slow during the winter months, but we think this will give purchasers time to adjust to the new rates (which will still be historically amazing). Just make sure to keep renewing your pre-approved rate(s), so that when you are ready to purchase you have the best rate possible

Economists like Toronto-Dominion Bank’s Craig Alexander project another half-point rate jump in five-year fixed rates next year. Based on CREA’s average Canadian home price and a 5 per cent down payment, that half-point would cost home buyers $8,900 more interest over five years versus today’s rates, assuming an equally priced home. What are the chances that rushing to buy now will cost you at least $8,900 more and/or cause you to settle for a less than ideal property? The right strategy Knee-jerk decisions tend to be costly when it comes to personal finance, be it with investing, buying insurance, or getting a mortgage. If you’re in the market for a new home, get one or more 120-day pre-approvals to protect yourself from rate increases and reset them every few months as necessary.

Then take your time, block out the rate chatter, and wait for a property that’s the perfect long-term fit… and good value. Canadians live in their homes an average of five to 10 years. That’s a long time to live with a rushed decision.