Yesterday, the Bank of Canada (BoC) hiked the overnight rate 25 basis points to 1.50 per cent, the fourth increase in the last 12 months.

In its release, the Bank noted that the housing market seemed to be stabilizing, and would be able to weather the hike. Some economists agreed with the sentiment, while others argued that there is still cause for concern.

“Of course, beyond the fundamentals, the current economic environment is hardly normal,” writes TD senior economist Brian DePratto, in a note discussing the hike. “Underlying risks related to housing markets and household debt already argue for caution in the pace of hikes.”

Meanwhile, Scotiabank VP and head of Capital Markets Economics Derek Holt wrote that the housing market does seem to be where the BoC wants it — at least for now.

“On housing, the BoC says ‘Recent data suggest housing markets are beginning to stabilize following a weak start to 2018,’” he writes, in a recent note. “When asked in the press conference if this is viewed as positive — presumably in the context of the BoC’s prior stability concerns — the Governor said ‘yes.’ That is not new per se…but it reinforces the point.”

But how will the rate hike affect homeowners, or would-be buyers? According to Zoocasa managing editor Penelope Graham, there are a number of ways the news could affect Canadians’ decisions, and wallets, in the coming months.

“Anytime a rate hike happens, it has a material effect on affordability,” Graham tells Livabl. “Mortgage rates are going to get more expensive, and that’s going to have an impact on homeowners.”

It could also affect when buyers decide to enter the market. According to Graham, some may choose to buy sooner rather than later, wary of another rate hike on the horizon.

“People may ask themselves, ‘Should I get into the market now, because it’s only going to become more expensive in the future,’” she says. “It’s a buyer mentality where they’re aware that more rate hikes are likely coming.”

If there’s one thing economists can agree on, it’s that more hikes are certainly on the way, with most predicting another hike in October. Yet DePratto is quick to mention that a fluctuating housing market and trade tensions with the US means nothing is for certain.

“Despite today’s hike only bringing the policy rate to about half of its ‘neutral’ level, the path forward, particularly in terms of the pace, remains cloudy and the Governor continues to emphasize that monetary policy needs to be done in real time,” he writes.

A major Canadian housing price index rose for the third consecutive month in June, as the demand for condos continues to rise.

The Teranet-National Bank Composite National Price Index jumped 0.9 per cent month-over-month in June, following a 1 per cent rise in May.

“Condo prices have risen at a fast clip since the beginning of the year in Toronto and Vancouver (after seasonal adjustment, 7.8 per cent and 16.3 per cent annualized respectively), while prices for other types of dwellings held their ground,” writes National Bank senior economist Marc Pinsonneault, in a recent note.

But according to Pinsonneault, June’s rise doesn’t mean that Canadian home prices are about to warm up in a big way. Instead, it’s just a sign that things have leveled out after January’s serious correction.

“Does this mean that the Canadian home resale market is about to enter into a new frenzy? No,” he writes. “June’s rise in the index, impressive at first sight, was in fact weak for this time of the year. Indeed, if the Index were purged from seasonal patterns, it would have been about flat over the last three months.”

But, although the index merely stabilized last month, it’s still good news. While condo prices continued moving upwards, low rise prices are now relatively flat.

“The resiliency of prices for [low rise homes] is indeed reassuring in view of higher interest rates and stricter mortgage qualification rules that dampen demand for the most expensive categories of dwellings,” writes Pinsonneault.

Want to pay San Francisco housing prices on a Columbus, Ohio income? Move to Vancouver.

While policymakers from Seattle to Boston lament a growing urban affordability crisis, a new study of home prices and earnings across more than 100 major U.S. and Canadian metropolitan areas shows Vancouver in an ignominious class of its own.

The median cost of a Vancouver home, adjusted for purchasing power parity, is US$672,000 — costly but still 15 per cent to 26 per cent below that of San Jose and San Francisco, the two most expensive housing markets, according to Andy Yan, director of Simon Fraser University’s City Program, whose study accounted for the difference in buying power of a dollar across geographies and currencies.

What pushes Vancouver to the top of the unaffordability rankings is paltry wages. In Canada’s third-largest city, the median household earns the equivalent of US$61,036 a year — in line with Columbus and less than families in Omaha, Nebraska, Kansas City, Missouri and even Lancaster, Pennsylvania, a rural community of 59,000 known for cornfields.

The Pacific Coast city’s property market is entering a slowdown after policymakers intervened with a slew of measures to temper demand, including a foreign buyers tax and tighter mortgage rules, along with higher interest rates. Sales hit a five-year low last month, while the number of homes on the market swelled to the most in three years.

But the figures show just how difficult it will be to close the affordability gap after a run up that’s seen the price of a typical home triple since 2005.

“You need one of two things: either Vancouver real estate prices need to halve to attain a certain level of affordability, or you need to double incomes,” Yan said.

An outright correction would be potentially devastating — real estate development is the province’s largest industry and housing a key driver of the local economy. Doubling incomes is wildly ambitious — similar in scale to a 10-year goal that China has set for itself.

“That’s the Herculean task of what Vancouver is facing,” Yan says.

Canadian delinquency rates, which have been declining since the last recession, will probably reverse and begin to climb by the end of 2018 as the central bank presses ahead with interest rate increases, according to the country’s largest credit reporting firm.

Regina Malina, senior director of analytics at Equifax Canada, predicts late payments on the country’s $599 billion of credit card, auto and other non-mortgage consumer debt will begin to move “modestly higher” by the end of this year.

“Our prediction is that we will start to see delinquency rates inching up a little bit, and debt probably slowing down,” Malina said last week in an interview.

The delinquency rate — which measures the number of payments on non-mortgage debt that were more than 90 days past due — was 1.08 percent in the first quarter, up slightly from the fourth quarter but still close to the lowest level since the 2008-09 recession.

The Toronto-based analyst declined to estimate how high delinquencies will climb, saying it depends on the pace of interest rate increases and what happens in the trade battle between the U.S. and Canada. She cited the experience in Alberta, where delinquency rates rose in some instances 20 percent or 30 percent on a year-over-year basis after the oil-price collapse. Such an extreme case, however, isn’t what Equifax is predicting. “It will only happen if we start seeing deterioration in employment numbers,” she said, adding delinquencies should remain “still very low,” and “they’re just going to start inching up a little bit, probably not double digits.”

CHANGE COMING? 

Household credit has ballooned to unprecedented levels in Canada, as in many other developed countries, amid historically low interest rates. That hasn’t posed too many difficulties so far, because the economy and the labor market have generated solid growth, allowing people to handle servicing costs. But with the Bank of Canada intent on raising rates and the U.S. and Canada engaged in a tit-for-tat tariff fight, that could change.

A red flag in the Equifax data was a decline in the share of people who completely pay off their credit cards each month. The 56 per cent who did so in the first quarter matched the fourth-quarter number and was down from as high as 59 per cent last year. It’s a small but important detail, according to Malina.

“The changes aren’t big, but when they’re consistent and we see it for two or three quarters, we start to believe it,” she said. “Given that less people are making their credit card payments in full, and those people are usually people with lower delinquency rates, we might be seeing overall delinquency rates deteriorating.”

Consumer debt including mortgages was $1.83 trillion in the first quarter, up 0.4 per cent from the end of 2017 and 5.7 per cent from the same quarter a year earlier, Equifax said.

Excluding mortgages, Canadians carry an average of $22,800 each in debt. Some other highlights from the report include (all figures exclude mortgage debt):

• Those between the ages of 46 and 55 have the highest average debt loads, at $34,100
• That age group is also seeing the largest increase in debt, year-over-year, at 4 per cent
• Of nine cities listed, Fort McMurray, Alberta, had the highest average debt levels, at $37,800, as well as the highest delinquency rate, at 1.72 per cent.
• Vancouver and Toronto saw the highest rate of debt accumulation in the first quarter, with 5.2 per cent and 5 per cent growth from a year earlier
• Montreal is the least indebted city, with average debt loads at $17,300
• Ontario and British Columbia have the lowest delinquency rates, at 0.95 per cent and 0.84 per cent. Nova Scotia, at 1.74 per cent, had the highest

Vancouver is the most expensive city for residential real estate in the country and it’s forcing the city’s homebuyers to stretch their budgets to purchase homes in the hot market.

In 2017, 48 per cent of homebuyers in Vancouver exceeded their budgets to buy homes, according to a recent Canada Mortgage and Housing Corporation (CMHC) survey, published last week.

Meantime, the same percentage of homebuyers in Toronto overspent when purchasing a home, while only 24 per cent of homebuyers in Montreal exceeded their budget.

“The data suggests the fear of missing out hypothesis could have an impact on buyers’ budget,” reads the report.

CMHC’s Homebuyer Motivation Survey polled a total of 30,000 homeowners in Vancouver, Toronto and Montreal Census Metropolitan Areas (CMAs) who purchased homes in 2017. The survey was developed to gain a better understanding of key drivers of rapid price growth in Toronto and Vancouver.

First-time homebuyers in Vancouver spent a median $1,228,881 on a single-detached home last year, while repeat buyers spent a median $1,199,221.

To examine if buyers did have a “fear of missing out,” the survey asked whether buyers bought sooner or later than planned. Although the survey results do not support a strong conclusion on whether buyers purchased their home based on fear of missing out, CMHC notes that buyers who deviated from their home buying plans likely overspent.

“[H]omebuyers in Toronto and Vancouver who reported buying a home before they anticipated or after they anticipated making a purchase were more likely to exceed their budget than homebuyers who did not alter their timing,” reads the report.

According to CMHC, buying sooner than expected may reflect a buyer’s lack of information about the market, resulting in them pushing up their initial budget and buying quickly before prices rise. When buyers purchase later than expected, CMHC says it suggests the inability to buy at the desired price, which would cause buyers to increase their budgets.

But why were more homebuyers in Vancouver and Toronto significantly exceeding their home buying budget compared to homebuyers in Montreal?

CMHC suggested two hypotheses to answer this question, but the data failed to support the theories.

The first hypothesis is that first-time homebuyers lack experience managing household finances and, as a result, are likely to exceed their spending budget. CMHC’s second theory is that homebuyers could be pushed to exceed their budget based on the dwelling type they purchase.

However, the survey results revealed that first-time buyers and repeat buyers in Vancouver and Toronto reported similar likelihoods of exceeding their budgets and the property type proved irrelevant as a cause of buyer overspending.

The survey also found that a small percentage of homebuyers reported paying less than they planned in 2017 — 6 per cent of homebuyers in Vancouver were under budget, along with 6 per cent in Toronto and 11 per cent in Montreal.