Going Hiking!

Yesterday morning the Bank of Canada announced that it would be increasing its overnight rate for a whopping 8th consecutive time by 0.25%, bringing it to a total of 4.5%. In response, lender prime rate now sits at 6.7%. Although we knew that this hike was likely, following a not entirely subtle suggestion at December’s announcement that the hikes would continue (albeit somewhat slowly), this new increase leaves many Canadians feeling rightfully exhausted and frustrated with the future of not only our economy but their own bottom line.

So, what are the takeaways from today’s announcement? After speaking with my mortgage broker regarding the latest hike, here was his quick breakdown on how the increase may affect those with a mortgage

-If you hold an adjustable rate mortgage (a variable rate with a fluctuating payment) then your payment is set to increase roughly $13 for every $100k you have left outstanding on your mortgage balance.

-If you have a variable rate mortgage (with a static payment) then it’s likely that today’s announcement will push you into trigger rate** territory (if you haven’t reached it already).

-If you hold a fixed rate mortgage, this increase will not effect your monthly payments during your current term

-We knew that the Bank was going to continue to aggressively target inflation with its interest rate manipulation which is the only real tool in its arsenal to do so. With December’s report illustrating a fairly strong slow down of economic inflation, it’s no surprise that compared to previous hikes, this was just a minor increase.

Going forward, the jury is out on whether we will see more increases. It’s no secret by this point that much more upward rate pressure could have a severely negative impact on the economy. That being said, it is something that the BoC will try to avoid. At this point, only time will tell!

**Generally speaking, the trigger rate is when your interest payments exceed your total payments. Meaning, you are unable to repay your loan with your current payment schedule.

Have We Reached The Bottom?

According to TRREB market stats, home prices in the GTA have remained relatively stable over the past 6 months after a 25-30% reduction from spring to summer 2022. This stabilization appears to be due to several factors:

1) Sellers are starting to come around to the new reality; you can no longer throw your house up on the market and expect to immediately get multiple offers and sell for an amount way over your expected price. It took a period of adjustment, but it now seems that sellers have come to terms with the fact that homes are selling for much less than they did at their peak. Let’s be clear, most sellers (if they have owned their homes for more than a couple of years) will still come out ahead and not take a loss if they choose to sell. The amount of equity they were able to build over the past 2-5+ years would ensure a net gain on the sale of their house.

That being said, sellers are not just giving their homes away. At a certain point, it makes more sense to keep your home and ride out this dip in the market (if financially possible).

2) Rising interest rates have caused a massive shift in market tendencies. With money becoming much more costly to borrow, buyer demand/fervour has dropped significantly. Since the amount of housing supply has been an issue for the GTA (and will continue to be), a drop in the demand for housing has led to more of a balance between the two. In recent years, one of the major factors in the value of home values skyrocketing was the fact that demand outpaced supply so dramatically.

3) This drop in demand has caused a more favourable market for those who are actively looking to buy. In turn, this allowed buyers to negotiate better terms for themselves in the transaction process; the super competitive bidding wars and offer nights began to fade away. For the past 6 months, buyers and sellers have been able to agree to terms that favour the buyer (drastic reduction in home price from the market highs) but also allowed the seller to get rid of their property at a price they can live with.

This is a graph charting the average sales price of homes in Toronto** (all dwellings; condos, townhomes, semis, detached, etc). Spring time highs of about $1.3M on average have since come down and stabilized around $1-$1.1M (**City of Toronto proper)

So, with prices remaining stable, have we reached the very bottom of this drop in home values? In certain areas and neighbourhoods this may be true. But for other less desirable neighbourhoods, there could be more room for prices to trend down. What we do know is that as long as interest rates remain high, people will be hesitant to take on a large amount of debt. With the expectation of another rate increase in the coming days, the market is likely to remain relatively the same.

Will the spring market, typically one of the busiest transaction periods, prove to be any different this year? We shall see…

Welcome!

After 10 years of helping clients to buy, sell, and lease property, I’ve decided to start blogging about my personal journey in real estate. There are a million reasons why I love working in real estate – from the desire to assist people find their perfect home, to the camaraderie and sense of accomplishment that come with helping people achieve their dream. Still, one of the biggest reasons is the opportunity to see the transformation that real estate can bring to people’s lives.

I will mostly be writing about my experience in the industry, bringing some insight into the market and also highlighting some fun and exciting things that take place in the beautiful city of Toronto! As you may know, there are so many wonderful things about living in Toronto. Being one of the most diverse and cosmopolitan cities in North America, The GTA (Greater Toronto Area) has everything from world-renowned art galleries to buzzing nightlife scenes and incredible natural attractions. There’s always something new to see and do in Toronto, whether you’re a resident or a tourist.

My intention for creating this blog is to provide a glimpse into the city we love to call home. Come along with me on this journey and I hope to keep you entertained as well as informed!