Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Mortgage rate and house price both are very much intertwined. Experts often argue about which one of the two influences the other. Actually it is impossible to say which of two things went down/up first or caused the other to surge/drop.

So far, in last ten years we have seen a one way march. Interest rates gradually sunk and house price rose.

Is it true that a jump in interest rate will influence house price?

In my opinion that will depend on what comes first.

  • If house prices fall, then interest rate may go up to cover small revenue cut for the lenders. If interest rate drops a lot then some lenders will go bust creating an excess demand for loans. That will push rate up.
  • If interest rates fall further then it is very likely that house prices will go up. In last few years – even in a bad economy – house prices kept going up.
  • If home sale (volume) slows down but not the price (which is likely) – then interest rates will feel the downward drag as there will be excess supply of funds.

Now these assumptions are all dependent upon no additional influence. That is never the case in our society. There will be private and public interventions if in case the bar swings too extreme.

Till now the indications are more towards a lower sales volume than lower prices. Many Canadian homeowners have the ability to hold off the sale in a bad market. That ability may come to rescue once more to fend off the bad weather.

Let us see what future really has in its sleeves for the Canadian homeowners.