The Okanagan housing market has been through a lot this year, and things don’t look to be settling down any time soon. The year started out with a record low interest rate, which had the housing market in a frenzy as prices climbed and the number of available homes plummeted. While the government has stepped in to cool things down, housing interest rates in Canada have gone up 3.5% since the beginning of March 2022.
In this article, we look at the effects of Canada’s interest rate hikes and how you can offset that with some cost cutting tips.
Interest rate and housing prices going up, up, and away
The Bank of Canada recently raised its key interest rate once again, this time by half a percentage point, bringing it up to 3.75%. This is the sixth interest rate hike so far this year. For a lot of people, that can mean the difference between getting a house and not getting it.
While these interest rates are not unprecedented, the housing prices are. Comparing the current situation with the last time the Canadian interest rate was at this level is drastically different. A 3.75% interest rate on a $100,000 mortgage from 30 years ago isn’t the same as a 3.75% interest rate on a $1,000,000 mortgage today.
Another issue is the price of housing in relation to disposable income. There’s a serious disconnect between the housing market and the amount of money the average Canadian is making.
Which means that wealthy Canadians aren’t too bothered. Perhaps unsurprisingly, they remain fairly unaffected by the rate hikes—while the average Joe worries whether they can afford getting that new home, lakefront and other luxury properties in Kelowna are still selling.
Large development projects are still on the go as well. A luxury hotel out near the Kelowna airport, a building site at Big White Ski Hill, and a multi-family development site in West Kelowna all show that high-end real estate development shows no sign of slowing down.
Cost cutting tips
If the interest rate has your heart racing, it’s probably time to look at ways of cutting costs. No one wants to be house poor (i.e. spending the majority of your income on a mortgage and other housing- related costs), so rethinking how you spend your money can help ease that burden somewhat.
Transportation
Owning a vehicle is a very convenient money pit. They only decrease in value, and you not only have to make payments, but there’s insurance, fuel, and maintenance/repairs costs to consider as well.
Many households these days have two vehicles, but as a cost saving measure, dropping down to a single-vehicle household would help immensely. While that may not be realistic, especially for growing families, there are also other ways to relieve the financial burden such as carpooling with others from work or taking public transit, both of which can save you a lot of gas money.
If you have the opportunity to work remotely, it’s a great way to cut transportation costs as well as the commute time. Not only will you save gas money from skipping the daily drive to and from work, but you might even be able to downgrade your insurance rates if you’re not using the car as much.
Budgeting for an Increased Interest Rate
With the interest rate going up, it might be time to rethink your finances. Look at your bank statements and see where your money has been going (aside from the mortgage and fixed costs like utilities). Seeing how much you have available after bills and then creating a budget for your needs and wants will give you a better idea of where your money is going.
Also, leave the credit and debit cards at home and reintroduce yourself to cash. You’re less likely to overspend when you only use cash, which leaves more in your bank account at the end of the day.
Side Hustle
Plenty of people work a second job to help offset costs. If getting a second job isn’t feasible for you, plenty of people have skills that others don’t, which can be used to earn some extra cash.
Freelancing, selling homemade goods, tutoring, or teaching are all ways to make some extra money on your own time. If you have a car, you could also drive for ridesharing apps like Uber or Lyft or even do some food delivery with Uber Eats or Skip the Dishes (although make sure to calculate whether it’s worth it because you could also see an increase in your insurance rates and car maintenance costs).
Looking for Guidance?
If you’re looking to get into the housing market, but need help determining what you can afford, The Mayne Brothers can help.
With 40 years combined experience in the Okanagan, they can guide you on your home buying or selling journey. Give them a call anytime, day or night, at 1-800-430-5030.
