Buyers are still demanding for houses in Toronto but they are however contemplating the effects an increase in interest rates of both Royal Bank and Toronto Dominion Bank will have on home prices and bonds.
If the interest rates possibly help to cool down the housing prices, it will be a big lesson in the world finance.
Although a lot of Canadians play an active role in the real estate market because it affects their personal finances, it’s the same way the world is concerned about the bond market.
An extreme drop in the real estate market will not only affect buyers and investors, but it will also impact the entire business activity.
In the same way a slowdown in market prices and bond prices will have just the same effect. Taking a look back, mortgage would have cost about 7%, 15 years ago.
Clearly mortgage rates in the past have changed considerably over the years, and one of the main effects of the rates is that it gives buyers the opportunity to borrow more money, and as a drop in mortgage rates continue, people can buy more houses.
All the excess money in the market, leads to an increase in house prices. This is because, when everyone lends money to purchase a house, the real cost of a house is the prevailing cost on the money borrowed. This in turn increases on the home value.
However Trump’s vow to spend $1 trillion, and also reduce taxes has left bond and mortgage markets, to fret hence they have decided to increase on bank rates.
Bond markets and the hosuing market have their differences, but an increase in interest rates will have almost the same effects on both. Higher rates also depreciate asset values and in turn it will affect the economy.