'No question' homebuyers racing to beat rate hikes: CIBC's Tal

By: Parveen Arora

'No question' homebuyers racing to beat rate hikes: CIBC's Tal

Tags: Real Estate Canada

According to a top Bay Street economist, Canada's red-hot real estate markets may cool down in the second half of 2022, as many buyers flock to snap up properties before the Bank of Canada raises its benchmark interest rate.

“There is no question about it that we are borrowing activity from the future,” said CIBC Deputy Chief Economist Benjamin Tal in an interview Monday, while pointing to a similar housing phenomenon in 2017 and 2018 when Canada’s central bank embarked on a hiking campaign.

“There's no doubt that we are borrowing activity from the future,” Benjamin Tal, deputy chief economist at CIBC, told Global News in an interview Monday, when he compared Canada's central bank's aggressive rate hikes in 2017 and 2018 to a similar housing scenario last year.

“When rates start to rise, people say, "Okay, interest rates are going up. I'd better get in now before it's too late," so you actually observe an increase in activity before rates rise too much. And that's exactly what you're starting to see right now,” he added.

Despite this, the supply of labor grows in the United States over the next several years, which should provide support for housing demand. “It will not be a collapse” because immigration levels are expected to return to pre-pandemic levels by 2022, making up for labor shortages.

The Bank of Canada has warned Canadians that it will increase interest rates as soon as April, and markets are pricing in a two percent policy rate by the end of 2020, up from 0.25 percent presently.

In the same year, mortgage rates for fixed-rate loans' 20+ years in length dropped to all-time lows. According to Mortgage Rates Today, new mortgage borrowers who rushed into locking in ultra-low rates might soon experience buyer's remorse when their loan term ends and they'll be compelled to refinance at a far greater rate.

With interest rates continuing to rise, Mr. Dietz said he would be monitoring the alternative lending sector for any warning signs as more customers seek non-traditional lenders. "If alternative lenders' share of the mortgage market is in the low single digits," said Peter Tal, "I'm pleased." The main threat doesn't lie with big banks, but rather with smaller non-bank lenders. 

Source: BNN Bloomberg