How will rising interest rates affect the housing market?

Canadian mortgage payers have been enjoying some of the lowest interest rates in decades for several years now, but recent economic forecasts are indicating that rates may soon be on the rise. Whether youre a homeowner or a prospective buyer, youre probably wondering how possible rate increases and other economic factors will affect the housing market in the months to come.

According to the Canadian Real Estate Association (CREA), the booming real estate market will continue strong throughout the remainder of this year. CREA reports that resale housing activity in Canadas major markets in the first six months of 2006 surpassed all previous records for the first half of any year. Sales activity is on track to set a new annual record in 2006 even though further expected price increases and recent mortgage rate hikes will cause transactions to soften marginally in the second half of the year.

If youre a buyer, theres a lot of inventory to choose from in resale homes. CREA reports that last quarters new listings reached their highest level in more than 15 years. Demand remains high, so that inventory of listings is moving fast. The average resale home price in the second quarter of 2006 set new quarterly records in almost every major market in Canada, says CREA.

With interest rates having peaked, strong employment and rising after-tax incomes will no doubt keep resale housing activity strong over the second half of the year, said CREA Chief Economist Gregory Klump.

If youre the owner of a luxury home, you can expect that your property will be in high demand in the months to come. CREA predicts that as the market becomes more balanced in many urban centres, a surge in demand for luxury homes will see the greatest percentage increases in average sale price in this sector.

So, if youre a seller, you can expect to see home prices continue to rise this year, especially in luxury homes. If youre a buyer, theres no decrease in home prices expected anytime soon, so this is no time to wait. Its in your best interest to act now. Based on CREAs industry forecast, further price increases are on the way. So why not get into the market and start building your own equity as prices continue to increase? The good news is you can still lock in some of the best interest rates you may be seeing for a while, which will ensure you have affordable mortgage payments for years to come.