As the real estate market evolves, Canadians face a new challenge – rapidly rising bond yields. In this blog, we’ll explore the implications for homeowners, homebuyers, and home sellers. This week we take a look at a recent Better Dwelling article.
Introduction
Government of Canada (GoC) bond yields are on a relentless ascent, posing significant implications for the real estate landscape. Canada’s rising bond yields are pushing mortgage costs higher, especially for 5-year fixed rates, as the corresponding government bonds reach their highest levels since 2007. This surge in rates is unique because it’s likely to persist for a more extended period than in the past two decades.
Bond Yields Accelerating
The GoC 5-year bond yield has shot up to a multi-year high, currently standing at 4.458%. To put this in perspective, it has increased nearly 1 in 8 basis points over the past five days alone, a pace rarely witnessed in the past year. This rapid ascent in yields is a clear sign of the changing financial landscape.
Longer High Rates
While comparisons are made to the last time yields reached these levels in 2007, there’s a crucial distinction. Back then, these rates were only briefly touched, limiting their impact on the market. In contrast, the current surge is expected to persist for a more extended period. This could reshape the real estate landscape in more profound ways.
Bracing for Prolonged High Rates
Bond yields affect mortgages of similar terms, and the gap is narrowing between 1-year and 5-year bond yields, impacting both fixed and variable rate mortgages. The unexpected shift in the economic outlook, marked by sticky inflation, global economic shifts, robust markets, and population growth, has contributed to this surge in rates. Furthermore, fading international demand for Canadian and US bonds, coupled with rising geopolitical tensions, is diversifying investment options.
Canadians should prepare for higher interest rates that are likely to endure. For homeowners, this means potential increases in mortgage costs. Homebuyers may face higher borrowing costs, impacting their purchasing power, while home sellers could encounter shifts in demand. Navigating these changes will require a keen understanding of the evolving real estate landscape.
Our Take
In this rapidly changing financial environment, homeowners, homebuyers, and home sellers must adapt to the reality of Canada’s rising bond yields. Prepare for potential increases in mortgage costs and shifts in the real estate market as we face a new era of financial dynamics. The real estate market is evolving – be prepared.
Curious or concerned about how this affects you? Call us – we are available and happy to help!