New homebuyers hit with surging mortgage costs due to rising interest rates

The cost of just about everything has been going up lately, and new homebuyers now have the extra burden of surging mortgage costs.

While this was expected in the wake of the Bank of Canada raising its benchmark interest rate, the real dollar amount paid by those who’ve recently purchased a home is staggering.

According to an analysis by Ben Rabidoux, president of North Cove Advisors and Edge Realty Analytics, new monthly mortgage payments on a typical home went up $800 between October and April.

“What we’ve seen in the last six months has been a dramatic increase in house prices, almost right across the country, but in particular in southern Ontario and the Lower Mainland,” Rabidoux told CityNews.

“More recently, we’ve seen a very dramatic increase in mortgage rates. When you combine the two, and you sort of look at what the monthly payment would be to purchase a new house each month and carry that mortgage, we’ve nationally that number has risen about $800 in the last six months.”

To put that in context, Rabidoux said it’s the steepest increase in new mortgage costs in three decades.

“I wouldn’t say I’m surprised by it,” Rabidoux said. “We know that the Bank of Canada is behind the eight ball when it comes to inflation, and they’re now trying to play catchup. Part of that is, they’re trying to tighten monetary policy, and that’s having a very pronounced effect on the cost of credit. I wouldn’t say it’s a surprise. The surprise perhaps at this point is how well housing has held in in spite of this incredible deterioration in affordability, but it’s not clear to me that’s going to persist.”

Home prices have started to drop, but not significantly. Rabidoux questions how long it will be before we see that start to happen, especially in southern Ontario and parts of B.C.

“It’s really difficult to imagine that this gets resolved by anything other than declining prices in the near term, unless the Bank of Canada really stepped back on the interest rate policy,” Rabidoux said.

The central bank will make its next policy announcement next month, and is widely expected to raise its key rate again, as it attempts to dampen surging inflation.