TORONTO, July 19 /CNW/ - The expected increase of the overnight lending rate by the Bank of Canada on July 20th 2010 will have little effect on the housing market, says Peter Kinch, one of Canada's top mortgage brokers.
The expected increase of 0.25% will not have a dramatic effect on interest rates, Kinch says. "Often consumers are confused when they hear about a rate hike. They think that interest rates are going to sky rocket, making housing unaffordable." The rate increase is a warranted response to our strong economy, and we will see the Prime rate rise as a result. But Kinch cautions consumers not to confuse the prime rate with long-term fixed rates. "The last time rates moved, we actually saw the long-term rates fall the day after the announcement," he says. "Long-term rates are governed by the bond market, which often assumes, or 'prices-in,' a rate increase before it happens. Last time, they assumed a higher than announced rate increase, which caused long-term rates to fall the following day."
For consumers looking to enter the real estate market, Kinch has some good news. "We should see a summer slowdown that is typical of any summer market. Prices should see a mild correction of 2-3%." But he warns consumers not to misinterpret this as a bubble that has burst. "Both the HST and recent rate increases created upward market movement from March to June; the coming correction is a result of a hot Spring market."
Peter Kinch is the author of The Canadian Real Estate Action Plan: Proven Investment Strategies to Kick-Start and Build Your Portfolio (Wiley; June 2010) and the founder of The Peter Kinch Mortgage Team and the PK-Approved Dominion Lending Centres network of brokers across Canada. As a speaker, author and educator, Kinch has been a mortgage guest on many radio and television programs across Canada and in 2008 was recognized by the Canadian Mortgage Professionals Magazine as the No. 1 volume producing mortgage broker in Canada. Peter is based in Vancouver.
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