Canadian Interest Rates Rise – Now What?


Yesterday the Bank of Canada announced a quarter point increase in the overnight lending rate, taking it from .5% to .75%. The increase was not a surprise. It was the expected move given their bullish words back in April and the strength of the Canadian economy overall in 2010.

But, global uncertainty has slowed the Canadian economy a bit more than expected. And with the Canadian housing  market slowing again things are still looking positive but not overheated. Our job growth numbers are up which is a very positive thing, but it’s not all sunny skies as stated by the Bank of Canada Governor Mark Carney in yesterdays statement:

While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

So what does all this mean for real estate investors in Canada?

I have one word for you:


I said it a couple of weeks ago when I said maybe it’s time to investing in Canadian real estate, and I will say it again today with a different spin. This time I will focus more on my fellow Canadians investing in Canadian homes – but hey, our neighbours to the South, you’re ALWAYS welcome to visit, shop and buy up here too!!

First, let’s look at what drives housing markets. You’re going to find very key factors including things like:

  • Increasing employment opportunities
  • Population growth (and the income levels of that population)
  • Affordability of the housing
  • Rental Rates
  • Psychological factors (consumer confidence).

There are other drivers and there are more details under these drivers but essentially when you look at what is behind a strong housing market you’ll find it’s population growth, job growth, income growth and decently priced housing relative to the incomes.

Interest rates play a role in the affordability of the housing and as a real estate investor interest rates are important because they play a big part in your profits and losses – but they aren’t the key indicator of what’s going to happen in the housing market.

If you don’t believe me, pick up a book by Kieran Trass called “The Housing Bubble. I think Kieran’s work should be REQUIRED READING for all real estate investors in the world. He has done an elaborate study of housing market cycles all over the world and his findings were pretty darn conclusive. And the proof he offers is hard to argue with in my opinion.

Where I live in BC, Canada interest rates are one policy decision that has opened up opportunity but there’s something else that just happened this summer that swung that window of opportunity wide open for the brave soles that dare to go through it. The two policies temporarily slowing the housing market down in BC are:

  1. HST: the hated sales tax … well officially called the harmonized sales tax. This tax came into effect July 1st with much confusion and concern. Basically the government has taken our provincial sales tax and mashed it up with the federal tax so everything gets charged one tax. There are some good reasons for doing this but the tax really caught most people by surprise and hasn’t been well communicated so it’s pretty much universally hated. And because it’s been poorly communicated, nobody knows what exactly the HST applies to when it comes to real estate. The reality is that HST only applies to NEW homes, not resale homes. When you buy resale homes privately there is no HST at all. If you buy a resale home through a real estate agent their commission is subject to HST. So it’s not as bad as everyone thinks yet there was a panic before the HST came in for everyone that was thinking of buying, to buy. Pretty soon people will forget about it and return to the market.
  2. The Interest Rate Increases: like I said, the Bank of Canada basically told us in April this rate hike was coming so people that were thinking of buying went out and bought. And now that rates have gone up a bit although really it’s such a small increase you’ll barely notice it people will be hesitating. It’s not going to stop them from buying, it’s just that the people who really wanted to buy did so before the hike.

Add all that up with what is always a slow housing season, the summer, and I believe we have a very small but wide open window of opportunity to do some bargain hunting.

It’s an opportunity because these policy decisions and seasonal factors are INFLUENCING the market but they are NOT DRIVING it.

In other words – things are slow for the moment – but it’s temporary.

I’m pretty bullish on the market we’re investing in on the West Coast of Canada. I see job growth. I see government investment. I see people moving from all over Western Canada to this area for decent paying jobs, better weather and a great lifestyle. And I also see very specific home buying opportunities within this city because there are a couple of areas the locals don’t like because once upon a time they were the yucky spots. But they’ve emerged in the last couple of years to be safer, cleaner and much stronger for future growth. Because the locals have traditionally stayed out of these areas, this means houses are undervalued by a large margin compared to the rest of the city. But, it’s shifting.

Right now though – everything has stalled. We’ve been watching about a dozen houses that have been on the market for a few months. We tried to buy one of them but didn’t get the terms we want and another we’re going to make a move on in a few weeks – we just wanted the seller to sit on it a bit longer in the hopes of getting a better deal. But NONE of the properties we’re watching have sold. Most have seen price drops.

Realtors that weren’t returning our calls in March and April are suddenly contacting us to say “hey I have a deal for you”. In other words they aren’t busy so they are now actively trying to drum up business. When that happens you KNOW there are going to be deals to be found. And I believe the best deals are going to be found in August as houses sit with no offers for the entire month of July …

And if you’ve researched your market like we have to know that even though the market is slow right now, the underlying fundamentals are strong with growing population, new jobs, infrastructure improvements and a positive outlook then you should feel confident moving in while the window is open right now to pick up a couple of really great deals while other buyers are freaking out about the interest rate increases and the HST.

We’re going to take a vacation at the end of July and then hammer the market hard in August with offers in search of great deals in good emerging areas … and I have a feeling we’ll look back in 6 to 12 months and be very glad we did.

First Image Credit: © Frenta |
Book Image Credit:

About Author

Buy and hold real estate investing in Canada since 2001, Julie Broad is now a full time real estate investor and investing educator.


  1. Jeff Brown

    Hey Julie — Again, you’ve made a stellar argument in favor of at least adding Canadian real estate to the American real estate investor’s menu. My question is how, when doing the before/after tax cash flow analysis, should we treat Canadian taxes upon sale? How much should we allot? In your professional opinion, what would be the impact on their bottom line return?

    Thanks again for another illuminating post.

  2. Hey Jeff – I pay an accountant a nice chunk of change to figure things like that out for me before I make big decisions. I wish I could help you but I am not a tax expert even for people buying within my own country let alone cross border shopping!! I did dig up some advice for you and post it in the last one I wrote about Canadian real estate but I honestly don’t know too much more than that!! You can always come on up and check it out … 🙂

  3. Pingback: Real Estate News Making Headlines Around the World: 13-23 July 2010 : Marquette Turner Luxury Homes

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