Homeobuyers need to prepare for rate hikes warns CIBC’s Tal

Homebuyers need to prepare for rate hikes warns CIBC's Tal

A well-known and respected Canadian economist believes that if market expectations are accurate, the Bank of Canada could raise its key interest rate at least six times over the course of 2022 - and that homeowners should prepare accordingly.

“I think there is a risk of getting into the market at today's rates,” Benjamin Tal, deputy chief economist at CIBC, said in an interview early this week. “We are still dealing with emergency interest rates. Let's remember that these are not normal interest rates and eventually they will rise."

“If you're in the market now and you're thinking about buying this huge house with a huge mortgage, let's think about it for a second. Can you afford this mortgage if rates will be 10, 150, 200 basis points higher? If not, buy a smaller house or rent."'

Bank of Canada's Tiff Macklem spoke on this belief following the central bank's latest interest rate ruling - hinting that rates could begin increasing as early as April of next year, a stark contrast to a previous forecast of rates holding steady into 2023.

Outlandishly low interest rates kick-started a real estate craze during the pandemic and have pushed home sales and prices to unprecedented heights.

“The average mortgage now, the new mortgage, is about $450,000. So you do the math. It's an extra $250 per month, if you raise interest rates by 100 basis points. So, it's not insignificant,” Tal explained.

Though higher interest rates would lead most to expect a dampened housing market, Tal doesn't believe it will automatically improve housing affordability. “I think that when it comes to affordability, really the speed at which interest rates will be rising is key. Again, the market is pricing in six hikes in 2022. That's very, very aggressive, and we know that there is a significant difference between what the market is thinking and what actually will happen, but clearly we have to think about higher interest rates down the road,” he concluded.