HomeBlogThe Impact of Rising Interest Rates on Ontario’s Housing Market

The Impact of Rising Interest Rates on Ontario’s Housing Market

The Impact of Rising Interest Rates on Ontario's Housing Market

Ontario’s real estate market has been extremely active over the past few years, breaking sales records while driving up housing costs. However, as interest rates increase, many are starting to question how long the prosperous times will remain. Let’s investigate this. Will Ontario’s hot housing market last or will it eventually cool off? This article will examine how Ontario’s housing market is impacted by rising interest rates. We’ll explore what this could imply for both present and future homeowners.

Are Ontario housing prices set to drop in 2023?

Let’s consider the Canadian real estate market at its current state – especially Ontario. We know it’s been extremely hot for several years. But considering the following four factors:

  1. Inflation and affordability issues
  2. Lingering effects of the pandemic
  3. Oversupply due to increased selling
  4. The current increase in interest rates

Many are speculating that housing prices might fall in 2023 due to these factors. However, Ontario’s housing market is not likely to slow down in 2022 according to the Canadian Real Estate Association (CREA). They state that sales are still growing with the number of newly listed properties dropping.

Despite this, some industry experts have predicted that there might be a housing market downturn in the coming years with average prices of houses in Canada as a whole dropping about 1% in 2023. However, nobody can guess with certainty; and it could just be wishful thinking for those looking to buy a home. With the pandemic ending and the continued recovery of the Canadian economy, along with the continued growth of the population (particularly in Ontario’s major cities), we are expected to see a continued demand for housing that will deter a significant drop in prices.

Will 2023 be a good year to buy a house in Ontario?

This is not an easy question to answer because there are a myriad of aspects to take into consideration. Multiple factors, such as interest rates and your financial status, will play a paramount role in determining whether it would be a propitious time to purchase a home. Say interest rates continue to surge. This would make borrowing money to purchase a house significantly more challenging due to elevated borrowing costs. As a result, the demand for homes would drop ultimately leading to a reduction in prices. On the other hand, if interest rates remain low, more people could have the means to purchase a home, increasing housing prices.

However, it’s not only interest rates that warrant attention. The overall state of the Ontario housing market in 2023 will also play a pivotal role here. If the number of potential homebuyers is higher than the supply of houses, prices will rise making it more difficult for first-time homebuyers to gain entry to the market. Conversely, if the supply of houses exceeds the number of potential homebuyers, it could be a favourable time to consider purchasing a home. Additionally, it’s reasonable to expect that more property owners may put their homes up for sale in 2023, as the last year’s interest rate hikes took a toll on landlords who were struggling with already high monthly mortgage payments. This influx of properties on the market could offer more options for prospective buyers.

Ultimately, whether 2023 will be a good year to buy a house in Ontario will depend on a variety of factors that are subject to change. Hence, potential homebuyers should keep an open mind, do their research, and seek professional advice before making a final decision.

How will rising interest rates affect mortgage payments?

When the interest rates rise, it impacts how banks loan out money and will ultimately impact mortgage payments. From how much you pay to borrow money to the amount you owe monthly for your mortgage. For those who have a fixed-rate mortgage, their monthly payment will stay the same. The same unfortunately can’t be said for those who have an adjustable-rate mortgage, their mortgage payments will increase as the interest rates rise.

Let’s take a look at an example. Let’s say you have a mortgage of $500,000, a 25-year repayment term, and an interest rate of 2.5%. In this case, your monthly mortgage payment will be about $2,225. Now in this scenario, let’s just say interest rates happen to go up by 1%. As a result, your interest rate is now unfortunately significantly higher at 3.5%. Now your monthly mortgage payment would go up to around $2,480 – this is an extra $255 per month. Over time, this can add up to an additional $76,500 in interest payments, and that’s a significant financial burden for many homeowners.

If you’re having difficulty making your mortgage payments because of the rising interest rates, it’s important to remember not to panic. You can always pursue help from a financial advisor or your mortgage lender. At Mortgage Broker Store, we understand that rising interest rates may result in some level of uncertainty when it comes to finding the right mortgage solution, and we’re here to help you navigate your options. From refinancing to modifying your mortgage, we can help you find the best solution to make your monthly payments more affordable. Power of sale or foreclosure may seem like an unavoidable outcome, but it’s not. Remember that there are always ways to avoid it, and we’ll be there to assist you every step of the way.

How do rising interest rates affect home prices in general?

Interest rates are a complicated factor when it comes to Ontario’s housing market. It’s comparable to predicting the weather, just too many factors at play. As mentioned earlier, if interest rates increase, fewer people might be able to afford their mortgage payments which reduce the demand for homes – leading to a decrease in home prices. But on the flip side, some buyers might feel the pressure to buy before interest rates get even higher, causing an increase in demand and potential bidding wars, ultimately leading to higher home prices, at least in the short term.

Well, in the end, nobody can predict with certainty how higher interest rates will affect the housing market in Ontario. But it is crucial to monitor how these changes could impact home prices and mortgage payments. As a consumer, you should pay attention to these factors. You can decide whether it’s a good time to buy or sell a house by researching and consulting an expert. A home is, after all, a substantial investment, so you want to be sure you choose wisely for your future finances. Feel free to contact us at The Mortgage Broker Store if you need assistance with anything regarding mortgages.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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