The Bank of Canada held its October rate meeting last week. As widely expected, the Bank opted to increase interest rates a further 0.25 percent, bringing the total key interest rate up to 1.75 percent. This is just one of many rate increases that we’ve seen over the last 12+ months — and was something that was expected by virtually all analysts and economists.

As the economy continues to run at or near maximum capacity, the Bank of Canada must keep inflation in check. Inflation is running at or near the upper range of its target; the Bank prefers to keep it between 2 percent to 3 percent. As well, the Bank of Canada Governor spoke about the NAFTA negotiations, known as the new USMCA trade deal.

With the new trade deal between Canada, Mexico, and the United States coming to a close, the final cloud hanging over the Canadian economy has now been lifted. This was the only negative headwind with regards to the Canadian economy — and with it gone, the Bank of Canada feels very confident in increasing interest rates, as well as the pace of rate hikes.

If things continue this way, rates will not only go up, but the pace at which they go up may be faster than previously expected. Analysts had predicted about three interest rate hikes next year; this may increase. Some economists even believe the Bank of Canada may increase the rate again in December, which was previously not thought to be possible. These are not bad things; they are solid indicators that the economy is doing well.

As we all know, there has been a lot of government intervention in the housing market in the last 12 to 16 months, the most significant of which was the stress test and the new mortgage rules earlier this year. This reduced the purchasing power of buyers by up to 20 percent.

The Bank of Canada has stated that the housing market appears to be stabilized and moving forward again. The rate hikes and the new mortgage rules don’t seem to have had a significantly negative impact, and the fundamentals of the market still seem very strong even as interest rates have increased.

The Bank of Canada brings rates down to stimulate economic growth. The cheaper money is, the more comfortable people are going out and spending it. Canada had one of the longest slumps in economic history following the 2008 recession and the 2015 oil crisis; it took a long time for things to recover and really start growing again in a meaningful way.

Based on the way the economy is growing, the correct interest rate is somewhere in the 2.5 percent to 3 percent range. Being at 1.75 percent, we still have a way to go even to the bottom end of that range. If we’re trying to be safe, we should look at something in that 3 percent range, which is where we may end up within the next 12 to 16 months.

Despite these rate increases, housing prices continue to increase as the fundamentals of the market are strong. Instead, what we will see with interest rates going up is that the prices will stabilize. Instead of 20 percent price increases year over year, we’ll see single-digit increases in most areas. Of course, there are still markets that will see higher levels of growth, while others will stagnate, as real estate is local. We’re in the hottest and most desirable housing market in the country.

We’ve seen the market continuing to move forward in Hamilton, albeit at a more sustainable pace. We expect that to continue, so there are good things on that front. There’s nothing to be concerned with as far as interest rate increases go.

Interest rates will be raised as quickly as they can while the Bank of Canada continues to monitor debt levels, household spending, and real estate; they will be moving interest rates as quickly as they can, but not in a way that will damage any of these markets. The Bank of Canada is trying to move us forward in a sustainable way while allowing the economy to grow.

If you’re looking to buy a home or an investment property, I’d suggest doing it as soon as possible. The lower the rate, the lower the payment and the easier it is to get into the market.

At some point in the not too distant future, the Bank of Canada may encourage OFFSI to scale back or remove the stress test entirely. This was likely a temporary measure to ensure that borrowers didn’t get themselves into too much trouble regarding the potentially higher interest rates to come. Once rates level out, I expect this measure to be removed. I wouldn’t be waiting for that day to come as no one anticipates that happening until rates are closer to normal levels, which are much higher than todays rates.

Buyers should get in the market as soon as possible. Sellers, if you’re holding onto your home for these massive gains we’ve seen in the past years, you may want to reconsider. While prices are going up, they’re likely to be going up in smaller increments. If you are interested in selling, now is not a bad time to do that.

Just a quick update on interest rates. It’s a hot topic and will continue to be a hot topic in 2019. The Canadian economy is booming: We have record low unemployment, wages are increasing, household credit and debt levels are moving forward sustainably, the housing market is through the woods, and any negative consequences of the government interventions have now passed. All-in-all, it’s good news for Canada and the housing market.