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With the news last week that the Bank of Canada increased its prime rate for the third time this year by 0.25 points to 1.75, many homeowners are wondering how this will impact house prices. Will this just slow down price growth, or cause a significant drop in what is still a hot housing market?
When trying to predict how the prime rate relates to home prices, it's very important to consider the historical data. Even after the increases this year, the prime rate is still incredibly low historically, making the cost of borrowing lower than at almost any other point in the last century. I find many homeowners have recency bias and are focused more on how interest rates compare to last year than how low they have been historically.
This lends to the impression that any increase in mortgage rates means the market will crash, even though this likely won't be the case.
Continue to read on: Huffington Post