Yet, almost half of borrowers (47%) say they or their families are “well-positioned” to weather increases in interest rates. By contrast, Mortgage Professionals Canada’s most recent State of the Housing Market report found that 70% of homeowners said they could handle monthly payments that were up to 20% higher.
That’s likely because interest rates have been so low over the past two years that current increases are bringing them back to historical norms. Money may not be as cheap, but it will still be relatively affordable.
This is especially true when you consider the impact of soaring inflation, which hit a 30-year high of 5.7% last month. Taking on a fixed mortgage, even at a slightly higher rate than today, can provide a little bit of a hedge against rising inflation. That’s because borrowers will be paying back their debt with money that is worth less than it was then when they originally borrowed it.
Rising costs a concern
Overall inflation is a growing concern among borrowers. Almost half of the respondents to the RBC poll are worried about the impact inflation will have on their ability to purchase a home, while 54% are concerned it will affect their ability to cover the costs of owning a home.
But homeowners are unlikely to delay or avoid buying a house because they are worried about future interest rates. A far more pressing concern is being priced out of the market.
Their fears are understandable – Canadian home prices have skyrocketed throughout the pandemic. The average home price in Canada was $816,720 in February 2022, according to the Canadian Real Estate Association, up 20.6% from the same month last year and a 51% increase compared to two years ago.
On average, those with a budget in mind if they were to purchase a new home say they plan to spend $506,646, up from $453,231 in 2021. While that budget has risen over $50,000 in a year, it still falls well short of the average-priced home in most markets.
It’s no wonder runaway house prices are the cause of growing frustration among prospective homebuyers. Almost half say thinking about saving for or buying a home as prices rise is causing stress in their relationship. Over half (54%) are stressed knowing they may need to buy a home farther away from family and friends because they can’t afford one in their area of their choice.
RBC’s online survey of 2,753 Canadians was completed between January 13 and January 29, 2022, with a margin of error of 1.9%.