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Central bank’s rate hike won’t significantly affect housing market
Jul 23, 2010
The Bank of Canada’s July 20 interest rate hike increase will have little effect on the housing market, according to Peter Kinch, a top Canadian mortgage broker.
Kinch said the bank’s overnight interest rate hike of 0.25 per cent will not have a dramatic effect on mortgage rates. 
“Often consumers are confused when they hear about a rate hike,” he added “They think that interest rates are going to skyrocket, making housing unaffordable.” 
Kinch cautioned consumers not to confuse the prime rate with long-term fixed rates. 
“Long-term rates are governed by the bond market, which often assumes, or ‘prices-in,’ a rate increase before it happens,” he explained. “Last time, they assumed a higher than announced rate increase, which caused long-term rates to fall the following day."
The nation’s major banks raised their prime lending rate by a quarter of a percentage point to 2.75, but had not by press time announced mortgage rate increases.
As of July 20, the advertised five-year conventional mortgage rate stood at 5.79 per cent, which was down 0.06 per cent from one year ago and 0.2 per cent below where it stood when the Bank of Canada made its previous interest rate hike on June 1. However, the rate is now 0.3  per cent higher than it had been at the beginning of the year.
In the case of Winnipeg, which has an affordable housing market compared to other Canadian centres, any potential mortgage rate increase will not have a dramatic effect on home buyers, added WinnipegREALTORS® president Claude Davis.
Kinch said for consumers looking to enter the real estate market, there is some good news. 
“We should see a summer slowdown that is typical of any summer market,” he said. “Prices should see a mild correction of two to three per cent.” 
The Bank of Canada said the revision to the rate “reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada.
“The bank anticipates that business investment and net exports will make a relatively larger contribution to growth. Where the domestic recovery had previously been led by housing and consumer spending, it is now guided more by government stimulus.”
“As it did with its previous announcement in June,” said Canadian Real Estate Association chief economist Gregory Klump, “the Bank of Canada messaged financial markets that further interest rate increases are not pre-ordained.
“The strength of recent economic indicators have prompted the bank to raise interest rates, but the bank has signaled that it may keep rates on hold should the economic recovery begin to show signs of losing steam.”
The next scheduled Bank of Canada rate announcement is on September 8.