In light of the latest hike in interest rates by the Bank of Canada, it’s crucial to consider the interconnectedness of bond yields, mortgage rates, and their impact on real estate investment.

Canadian mortgage rates are on the rise again, reversing the temporary decline that previously stimulated home prices. The 5-year fixed term mortgage rate, which retracted amidst the US banking crisis at the start of 2023, is now escalating due to surging government bond yields.

How does this link to commercial real estate? Understanding the dynamics between yields, terms, and risks helps us grasp the cost of borrowing. Variable rate mortgages mirror the Bank of Canada’s overnight rate, whereas fixed rate mortgages are influenced by similar government loan terms as they vie for investor capital.

A prime example is the Government of Canada’s 5-year bond yield, which directly impacts the 5-year fixed rate mortgage cost. Any significant rise or fall in these yields can swiftly alter the attractiveness of mortgage products, and by extension, influence the commercial real estate market.

As market uncertainty grows, we’ve seen a broad range in Canadian mortgage rates. This gap can result in substantial differences in annual payment, emphasizing the importance of careful financial planning and the importance of a thorough evaluation of your real estate assets and cash flow. 

Stimulated in large parts by the Bank of Canada, the traditional favourite 5-year fixed term mortgage, known for its affordability and leverage for borrowers, is rapidly becoming more expensive due to this rise in government bond yields and thus borrowing costs.

On the eve of market changes brought about by the increases in premium and operating expenses from the CMHC, real estate investors are facing multiple challenges in order to maintain the level of profitability of their portfolio. 

For commercial real estate investors, this change implies an imminent deceleration in price growth, as higher rates are introduced to the market. It’s paramount to remain informed, adaptable, and strategic in this ever-evolving financial landscape.

So, what’s the way forward in this uncertain market? It’s a prime time to explore diversification, take advantage of different asset classes and geographical markets to mitigate risk and reevaluate your investment strategy by seeking guidance from industry professionals. Votre Equipe Immobilier is here to assist you and find your next opportunity.

By proactively adapting to these market changes, you can turn potential threats into opportunities and secure a lucrative future for your next years as a real estate investor.