The Canadian Press

Potential homebuyers spurred into action by fears of an imminent interest rate hike may be better off to wait and avoid bidding wars that can prove even more costly, according to consumer credit experts.

Laurie Campbell, executive director of Credit Counselling Canada, says Canadians already feeling societal pressure to be homeowners are more likely to engage in bidding wars and overspend when they hear that their ability to fulfil that “North American dream” could soon erode.

“We’re not only enticed by agents and those who market mortgages and the whole concept but…society as a whole,” Campbell said.

“Our goal is to be homeowners and you better do it quick, you better get in the market quick because otherwise you’re not going to get in.”

The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.

“They’re overpaying for houses because they’re all trying to get into the market before interest rates go up,” Campbell said. “Especially right now with this whole time bomb of interest rates, for sure there’s a lot of people out there thinking they better get in the market today.”

Two bank surveys released Wednesday found that potential homebuyers are feeling pressure to buy homes sooner, but are worried about their ability to pay for their homes when mortgage rates rise.

The Bank of Montreal said as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.

About 15 per cent of potential homebuyers said they have been in bidding wars, and for those who had their housing bids rejected, 14 per cent believe it caused them to overspend on their next offer.

“There’s definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.

“While we encourage Canadians to pursue their home ownership dreams, we recognize it’s easy to get caught up in the emotions of the purchase and this can lead to stretching one’s budget too thin.”

Meanwhile, Royal Bank’s annual home ownership survey found about 64 per cent of mortgage holders are concerned about higher rates over the next year. Almost three-quarters of homeowners, 73 per cent, felt strongly that homebuyers needed to think ahead to ensure they will still be able to make their mortgage payment if rates rise.

The bank said six in 10 mortgage holders said they had taken advantage of current low interest rates to pay more principal on their loans.

Most economists say low interest rates are behind the continued strength in the housing market and expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning in late spring or early summer to fight inflationary pressures in the economy.

The cost of servicing a mortgage fell 5.8 per cent in February as a result of record-low interest rates, but with many Canadians taking on ever larger mortgages in expensive markets across the country, higher rates could create problems for some.

BMO’s senior economist, Sal Guatieri, says that with a cooler housing market “just around the corner,” prudence may be a good choice for many new entrants.