Hold Up!
We have some good news on the home front! For the first time in a year the Bank of Canada has decided to hold its key interest rate; Incredible news for current home owners and prospective buyers. Until Wednesday, the BoC raised its key rate 8 straight times (bringing it from close to 0% up to 4.5%) in a relatively short period of time. These rate hikes put an increasingly heavy burden on home owners as the cost of of borrowing ballooned. The increases were especially significant for those holding a variable mortgage as their monthly mortgage payments skyrocketed to the point where a trigger rate was hit; which I wrote about earlier this year (you can read about it here).
The Bank of Canada’s key interest rate remains steady at 4.5%
As far as the economic outlook goes, I think this bodes well for the GTA real estate market. We have begun to see an uptick in activity over the past few weeks and it seems as though the market is ramping up as we head into spring; typically one of the busiest transaction periods of the year. Buyers have adjusted to the current interest rates and are hopeful that they will start to come down over the next year or at the very least, hold steady. Sellers have also noticed the increased activity among buyers in the market and many have responded with the familiar tactic of listing their homes slightly below market value and setting an offer presentation date. This gives buyers about a week (on average) to thoroughly look through the property before presenting their offers on the presentation date. Listing slightly below market value can benefit the seller as it leads to more potential buyers viewing the property which they hope will lead to more offers and a higher sale price. However, there is a risk to using this strategy as there is no guarantee that the offers a seller receives will reach the price point they truly desire.
Will we see the real estate market bounce back in a major way this Spring?
While the interest rate hold is a massive relief to many, there can be some negative consequences on the macro level. Our neighbours to the south have yet to tame their economic inflation and have shown no sign that they will stop their interest rate increases. As our biggest trading partner, US monetary policy has ramifications for us here in Canada. Historically, Canada has followed the lead of the US when it comes to rate hikes/decreases and for good reason. The fact that our economies are so closely linked to each other, increased inflation in the US usually means that a similar occurrence is likely to happen in the Canadian economy. If our paths regarding interest rates diverge too much, the value of the Canadian Dollar can take a hit; resulting in a major impact on US imports. As I stated earlier, the US is our biggest trading partner and if goods become more expensive to import, we will see that reflected in an increase to the price of products on the shelves.
Back to real estate! With rates remaining steady, I’m confident that the recent increase in market activity will continue. Many buyers and home owners(myself included!) are deciding to take short term mortgages (1yr, 2yr, 3yr) in hopes that when their term is up for renewal, the interest rates will have come down to a more manageable point. It is always important to remember that as a country we witnessed a housing boom and enjoyed historically low interest rates for the past 10+ years. The immense year over year rise in home prices were unsustainable at the rate they were increasing from 2018 and onwards. I believe the market correction over the past 6-8 months while painful to some (most?), were a necessary evil in order for the economy to move forward in a healthier manner.
