BMO senior economist calls a recent rate hike “a hammer to real estate market”

According to BMO Capital Markets senior economist Robert Kavcic, the central bank’s latest decision to raise its key lending rate is pushing the real estate market to an even stronger correction (prices decline) next year.

In his opinion, the unexpected 1% rate increase by the governor Tiff Macklem is like taking a hammer to the housing market.

Kavcic says the hike which made the commercial banks also raise their prime rates has made it more difficult to qualify for a mortgage with today’s stress test requirements.

The test determines the qualifying rate for uninsured mortgages at either a contract rate plus 2% or 5.25%, whichever is greater.

Kavcic noted that before the increase, variable-rate borrowers still had to qualify at 5.25%, but this number is now close to 6%, which he thinks is too much for the market.

Fixed-rate borrowers are qualifying at approximately 7%, which is also reducing their purchasing power.