In what was the central bank’s biggest hike in more than 20 years, the key interest rate was raised Wednesday by half a percentage point to one per cent. The move is meant to help fight inflation that hit a three-decade high of 5.7 per cent in February.
But because the rate also impacts the cost of bank loans, including variable-rate mortgages, it’s expected to lower demand for housing across the country.
“Having higher interest rates will cool off the market because it will make buying a new property or financing a new property more expensive,” said Mike Moffatt, an associate professor at the Ivey business school at Western University.
The expected dip in demand nationally, however, may not be as big in London, which has other forces at play pushing prices up, Moffatt said.
Key among them is the growth the region is experiencing. According to the latest census data, the London area’s population grew at a rate of 10 per cent between 2016 and 2021, making it the fastest-growing metropolitan area outside of British Columbia and the fastest in Ontario.Skyline of Downtown London, Ontario
“As the pandemic sort of continues and work from home becomes more commonplace for workers, a lot of families who are living in the Greater Toronto Area are making their way down to Southwestern Ontario because they want more space, a bigger backyard . . . so expect demand to stay strong,” Moffatt said.
Home prices in the London region have been on a tear over the past five years and especially since the start of the COVID-19 pandemic in March 2020.
The average resale price of a home, for instance, hit a record of $825,000 in February, $210,000 more than in February 2021, before dipping slightly for the first time in months in March.
But even at those heights, London remains more affordable than many communities in Ontario, said Randy Pawlowski, president of the London and St. Thomas Association of Realtors.
“When you look at the average price across the country, our area is still $115,000 below the other centres to the east of us and some of those municipalities,” he said. “So there’s still upward pressure everywhere.”
He added: “Clients are wondering if they’ve missed the peak by not bringing properties to market sooner. But you know, who’s to say for sure?”