As interest rates rise, Ottawa's housing market shows signs of cooling

The Bank of Canada hiked its key overnight interest rate Wednesday in an effort to tame soaring inflation.

The rate rose 50 basis points to 1.5 per cent. This is the third straight hike this year.

"The bank is now in a phase on monetary tightening," says Vivek Dehejia, a professor of economics at Carleton University.

He says this means that borrowing money for people in Ottawa is now more expensive.

"Bottom line is we will all pay higher rates for borrowing across the board," says Dehejia.

In April, inflation reached 6.8 per cent, the highest level in 31 years, according to Statistics Canada.

"It means borrowing for homes, cars, credit cards are going to have to tighten our belts…it is the harsh reality, but it is the tough medicine the Bank of Canada has to deliver," Dehejia says. "If they don’t act now, the problem is just going to get a lot worse.”

Ottawa’s red-hot housing market is showing signs of cooling because of rising interest rates.

Geoff Walker is an Ottawa realtor.

"Interest rates do have a direct impact in borrowing power in property values. Housing is one of the hot topics with inflation, so these are definitely measures they are trying to curb that."

Walker says bidding wars are still taking place but are becoming less aggressive. Walker says,

"It is not necessarily a softening, but a market going though transition. The peaks of property values are locked in, and we are seeing a market where buyers are having the opportunity for the first time in a long time to negotiate," Walker says.

His advice to those looking to sell their homes.

"You don’t want to have a knee-jerk reaction to anything," Walker said.

"If you are a buyer with a short-term plan, I would think twice. I would really say, 'Why am I doing this?’ “As a seller you need to be mindful of the times. It is like a portfolio in the stock market, everyone remembers their all-time high, even if it comes off three-four per cent, it is obviously grown at an exponential rate," Walker says.

“Going forward we will all be watching to see if what the Bank of Canada has done is create a soft landing, we are all hoping for,” says Walker.

The Central Bank says it will continue to increase interest rates to combat inflation and they are, "prepared to act more forcefully if needed to meet its commitment to achieve the two per cent inflation target.”

The next Bank of Canada rate announcement is scheduled for July 13.

David MacDonald is an economist with the Canadian Centre for Policy Alternatives. He says we could see a few more hikes this year.

"It looks like this time around the bank is probably pushing towards at least two per cent, we will probably see that in July which is the next announcement on July 13," MacDonald said.

"The Bank believes that the ‘neutral rate’ is between two and three per cent where they stop providing stimulus to the economy and so I think they are probably pushing to get to that two per cent range with inflation numbers continuing to be high over the course of the spring."