Qualifying rate to increase?

This is when one association is predicting the qualifying rate might jump

Qualifying rate to increase?
This is when one association is predicting the qualifying rate might jump.

A potential Bank of Canada benchmark rate increase has been the talk of the industry for the past few weeks, with many invested parties speculating on when the government will make the move.

For its part, the British Columbia Real Estate Association is predicting the Bank will hold off until 2018.

“While the likelihood of the Bank raising its target rate by the end of 2017 has certainly increased, we still expect the Bank to hold off until early 2018, particularly if oil prices remain low and inflation fails to pick up,” Cameron Muir, BCREA chief economist, wrote in his latest Mortgage Rate Forecast Report.

As a result, the association is also predicting the five-year qualifying rate will jump from 4.64%, as it stands today, to 4.74% in Q1 2018.

The average five-year mortgage rate, meanwhile -- which sits around 2.61% -- will jump to 2.79% by the end of Q3 2017, and then to 2.9% in Q4 and 3.05% in Q1 2018.

The qualifying rate is expected to hit 4.84% by Q4 2018 and the average five-year mortgage rate is predicted to reach 3.35%.

That’s the not-so-good news for those who plan to delaying buying a home until then. However, the rate increases will be the result of overall economic recovery.

“The Canadian economy has finally returned to good health following the rapid and dramatic decline of oil prices in late 2014 and the consequences of wildfires in Alberta last year. Since the third quarter of 2016, the Canadian economy has expanded at an average rate of 3.5 per cent, well above the Bank of Canada’s estimate of 1.7 per cent sustainable long-run growth,” Muir wrote. “After posting nearly 4 per cent growth in the first quarter of this year, we expect that real GDP growth will slow slightly to around 2.4 per cent in the second quarter with the economy ultimately growing 2.5 per cent this year and 2 per cent in 2018.

“If the economy continues to accelerate, and growth in real GDP is higher than currently expected by the Bank, slack in the economy could be eliminated by as early as the end of this year, which could push up the timetable for monetary tightening.”

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