Bank of Canada raises interest rates, is it the right step?

Wednesday, March 2, 2022, the Bank of Canada took a long-awaited, much-needed step, raising interest rates from their .25% historic low, to .50%.
Although minimal, we here at REDCanada still absolutely consider this to be a win for multiple reasons.
First, from a less-than-technical perspective, lenders can no longer advertise interest rates as a “historic low”. This is important because everyone; shoe shoppers, those browsing used car lots, and prospective home buyers naturally want, and flock to, the best possible deal. The simple act of raising rates just .25% higher takes some of the excitement away – rates are no longer at their absolute lowest, and the thrill of the deal is no longer there. Psychology and real estate married.
Additionally, the slight raise will aid in stopping the constant bidding wars we’ve seen throughout the past couple of years. For many buyers, the true rock-bottom interest rate was the only thing allowing them to purchase in the current market. Even with this slight .25% raise, those buyers are now eliminated, and the elimination of that group leads to fewer bidding wars.
The final positive impact we’ll highlight today is that the raise will likely lead to a decline in third-party investors snatching up multiple properties; a practice that has made it increasingly difficult for local buyers and families to purchase as the inventory is so consistently depleted. The raise will make it so that investor buyers will need to make the choice between two or three properties as opposed to having the flexibility and funds to pick up multiple at a time.
That all said, we still want and need more.
Our Founder of REDCanada, Barry Kainth, said that housing demand likely won’t be impacted till rates rise 1.50 – 2.99% points – and we agree. The rates were dropped from 1.75% to .25% in February 2020. In 2018, we had a gradual climb from.25% to 1.75%. The same levels need to be reached. The affordability of housing is significantly impacted by these rate drops in many major cities throughout Canada.
Imagine the changes we’d see in the above impact areas if rates continued to rise. Constant bidding wars would become a thing of the past, out-of-control home prices would begin to plateau and we’d settle back into a future where Canadians are housed affordably and safely, appropriately and comfortably.