Will the latest interest rate hike cool off Canada's housing market? Experts aren't so sure

There are already some short-term signs that Canada's housing market iscooling as the Bank of Canada startsto raise its benchmark interest ratebut some mortgage experts are questioning how much long-term impact the move will really have.

"The past two years, we've had free money," said Nasma Ali, a Torontobroker and the founder of a real estate agency called One Group.

But now that interest rates are climbing, withthe Bank of Canada raising its benchmark rateon Wednesday by half a percentage point to one per cent,Ali says payingthose highercosts is going to be "a tough pill to swallow" for some prospective home buyers

"Now, people will think twice," she told CBC News.

According to the the Toronto Regional Real Estate Board,average prices in the Greater Toronto Areadropped from $1.33 million in February to $1.29 million in March, which bucked the seasonal trend. Ali says she has seen market prices dip and fewer bids on homes overall.

But while banks are increasing theirrates for variable mortgages and lines of credit, thus discouragingsome prospective home buyers from entering the market, Aliand other housing experts wonder whether the effect will last.

The increase in the benchmark rate isthe biggestin about two decades an attempt toreinin soaring inflation. But rates are still lower than pre-pandemic levels.The bank slashed its rate to barely above zero in March 2020after COVID-19 first struck.

"The latest increase will have a cooling effect," said James Laird, the president of Canwise Financial and co-founder of Ratehub.ca, a website that compares interest rates for consumers.

But Laird saysit will not be the only factor affecting the market.

"We have lots of new Canadians coming into the country. They're looking to buy homes. There's still a supply problem."

However, Laird and Ali both warn home prices might decrease, but buyers will be paying more interest on their monthly mortgage payments.

Alisaysthis mightaffect first-time home buyers the most.

'All this brouhaha'

Dustan Woodhouse, president ofMortgage Architects, a brokerage firm based in Vancouver,points out the announcement does not affect themajority of people who already own homes, since most of themhave fixed-rate mortgages.

"All this brouhahaout there about what it all means it doesn't really mean much," he said.

Woodhouse does not believe the interest rate hike will dissuade most first-time home buyers from getting into the market, if they can afford it in the first place.

"It's not a level playing field," he said. "But the reality is even though detached homes have become the realm of the upper middle class, there's enough people in that category versus the supply of homes to buy that the market is stable and strong."

Essentially, for those who can pass the mortgage stress test and put enough money down, a higher interest rate won't stop themfrom making an offer, Woodhouse says.

But he does say it might rein in their spending on other things.

"It's probably means a shorter line outside a restaurant like The Keg on Friday night. They're not going out for a $150 dinner three times a month. Maybe only twice. Maybe only once."