Interest Rates and Housing Prices - A Discussion

  • Christian

    Status: Forum Member

    Posts: 111
    Joined: 17 Nov 2009
    From: North Vancouver

    Hi there.

    Does anyone have insight on the correlation between interest rates and house prices in Canada?  We are at historical lows and all REIN members know some geographic regions in Canada seem to be somewhat overpriced with poor affordability.  Vancouver, Toronto etc...

    Most of what I read about Canadian markets state that an increase in interest rates DO result in house prices coming down.  This seems somewhat contrary to historical evidence in the US whereby an increase in interest rates do not effect house prices that much because US citizens can write off their mortgage payments against their income tax, somewhat offsetting the higher interest rates and associated monthly mortgage cost. 

    Don speaks often that interest rate increases do not necessarily result in a decrease in house prices, but with proof that these low interest rates have somewhat contributed to this "false boom" in certain cities, how can an increase in rates not effect real estate in Canada.  Simply put, real estate is less affordable so do prices not have to adjust? 

    Obviously, GDP, in-migration, jobs etc... must also be factored in.  I think of Edmonton whereby GDP and job growth is strong, therefore, an increase in interest rates may not lower housing prices as much (prices may still go up) because of these key market drivers.

    Are there any prior posts on this?

    Just wanted to open a discussion if anyone is interested as I am sure this is on many REIN members minds. 

    Thanks. 
    Christian Stewart, CGA

    Stewart + Associates, CGA
    christian@balancecounts.com
    www.balancecounts.com
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