Mortgage rates had already spiked before the central bank raised its benchmark interest rate by 50 basis points to 1 per cent on Wednesday – its second increase in two months and its largest hike since the turn of the century.
Toronto-Dominion Bank economist Rishi Sondhi said home prices in Toronto and other hot markets could start to ease in the second half of the year.
Bank of Montreal senior economist Robert Kavcic said: “There was a lot of excess demand built on the fact that home prices were expected to keep rising quickly.
“We should remember that it’s starting from an extremely elevated level, so even as it moderates, we still think it will stay high,” she said at a news conference on Wednesday.
The last time the central bank successively raised interest rates was in 2017 and 2018, in response to the real estate frenzy in Toronto and Vancouver.
Today, the popular five-year fixed rate mortgage is between 3.49 per cent and 4.29 per cent, according to mortgage broker Angela Milosevic, who has brokered home loans in the Cambridge and Kitchener-Waterloo area for about 16 years.
With the five-year fixed mortgage rate now around 4.29 per cent, that means borrowers must prove they can pay their loans with an interest rate of 6.29 per cent.
In the Halton area, which includes Milton, the typical home price dropped 2 per cent after rising 7 per cent from January to February, according to the local board.
Ms. Charlton said she has found that when interest rates rise, prospective buyers start looking at cheaper alternatives to a detached house.