April 5, 2022

If interest rates continue to climb over the next five years, how might this affect the affordability of real estate in Canada?

According to a recent survey conducted by Leger on behalf of RE/MAX Canada, eight out of 10 Canadians ask themselves these same questions. Over the next five years, 78% of Canadians say taxation, interest rates, economic recession, climate change, mixed housing, and public transportation will be their biggest worries.

CIBC Capital Markets reports that three million Canadians lost their jobs as a result of COVID-19 and 2.5 million started working fewer hours. Now, Canada has more employed Canadians than it did during the pandemic, and the country is exceeding its targets for recovery (source). The first four waves of the pandemic were characterized by ultra-low interest rates without rampant unemployment, as Benjamin Tal, the Deputy Chief Economist at CIBC Capital Markets, noted in developing this report.

“The Canadian housing market has historically provided homeowners with solid financial security and great long-term returns,” says Christopher Alexander, President of RE/MAX Canada. For this to continue, governments and policy makers need to take a thoughtful and collaborative approach that addresses the concerns Canadians have regarding home ownership.

Even with a high housing demand oversupply, prices are likely to rise in a scenario like this with a higher interest rate environment. However, the housing market could be more stable and less heated than what Canadians have experienced over the last five years.

Canada currently has an inflation rate of 5.7 per cent – the highest since 1991. The recent talk of interest rate hikes has Canadians worried about the impact of rates on the housing market and the economy. According to the Leger survey, 58 percent of respondents believe that rising interest rates will reduce their desire to buy or sell property in the next five years.

COVID-19 remains another big caveat and it’s possible that new variants could cause future waves; nonetheless, Tal considers the BoC recession to be the biggest threat to Canada’s economy and housing market.


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