Inflation has pushed up the cost of just about everything recently, and new home buyers are not immune to rising interest rates that have made their home loan costs soar.
(Image source: Daniel Neuhaus)
While this was to be expected after the Bank of Canada raised its benchmark interest rate, the actual amount paid by people who recently bought a home is staggering.
According to an analysis by Ben Rabidoux, president of North Cove Advisors and Edge Realty Analytics, monthly mortgage payments on a typical home rose by $800 between October and April.
"Over the past six months, we've seen a huge increase in home prices across the country, including in southern Ontario," Rabidoux told CityNews.
“Recently, we’ve seen a very big increase in mortgage rates. When you combine the two, you can see what the monthly mortgage would be if you took out a loan to buy a home. We’ve seen nationally, the average Mortgage loans have increased by an average of about $800 a month over the past six months."
This is the largest increase in mortgage costs in three decades, Rabidoux said.
"I wouldn't be surprised by that," Rabidoux said. We've got serious inflation right now, and the Bank of Canada is setting policy to get it under control. Part of that is they're trying to tighten monetary policy, which has a very big impact on the cost of credit. There's a clear impact, so what's happening isn't unexpected. But what really surprises me is how well the housing market looks to hold up despite the incredible deterioration in affordability. However, this is the case I don't know how long it will last."
House prices have started to fall, but not significantly. Rabidoux questioned how long high home prices could last, especially in southern Ontario and parts of B.C.
"It's really hard to imagine in the short term finding any solution to the problem other than falling home prices," Rabidoux said. "Unless the Bank of Canada really compromises on interest rate policy."
The central bank will announce its next policy next month and is widely expected to raise its key interest rate again as it tries to rein in sharply rising inflation.