Rising interest rates will do little to dampen Fernie’s hot housing market

The Bank of Canada’s interest rate hike is unlikely to cool Fernie’s red-hot housing market, said a prominent local realtor.

Though the increase could hurt homeowners and homebuyers struggling to manage mortgages or other forms of personal debt, swelling demand and low supply of single-family residential homes means prices will remain high, said Peter Sterling, a realtor with Remax Elk Valley Realty,

“It’s a huge story in our little town,” he said. “People are discovering how great a place Fernie is and folks want to move here and live here but there’s just not enough homes.”

Higher interest rates can soften prices in larger markets but the increase will have little effect on Fernie’s market because of shrinking supply, said Sterling.

In the spring of 2016 there were about 60 single-family residential homes for sale in Fernie but by this spring the figure had fallen by over two-thirds to about 20, he said.

“Homes are selling and they’re not being replaced,” he said. “They’re becoming rarer and rarer.”

Most new homes in the city are custom homes being built for an individual customer that have been sold before being constructed.

“The new construction is already spoken for,” said Sterling. “It’s not creating more inventory for people to buy.”

Of particular worry is a shortage of mid-range homes priced between $300,000 and $500,000, which a majority of buyers seem most interested in, he said.

According to BC Assessment’s 2017 property values, the average single-family residential property costs more in Fernie than anywhere else in the Kootenay-Columbia region.

The average value of a Fernie home is $451,000, which is about 16 per cent more than the next most expensive jurisdiction in the region.

Fernie also has the third most valuable property in the Kootenay Columbia: an acreage located on Hill Road, which is valued at approximately $4.23 million.

On July 7, the Bank of Canada raised its overnight interest rate to 0.75 per cent from 0.50 per cent. It was the first increase in the cost of borrowing in seven years.

Zonya Knooihuizen explained Canadians with variable-rate mortgages will immediately feel the increase in the overnight rate.

Homebuyers with fixed-rate mortgages will also be paying more. In anticipation of the Bank of Canada’s increase to its key interest rate, Canada’s five biggest banks increased their prime interest rates to 2.95 per cent from 2.7 per cent.

However, payments for fixed-rate mortgage holders won’t change until the mortgage comes up for renewal.

Knooihuizen said she has received announcements from lenders that they anticipate another increase to prime interest rates.

“Rates had been at a historically low level and they’re still very low,” she explained. “It’s just that they’ve been so low for so long, people assumed they would stay that way but they’re still very good rates.”