Over the last few days, we have been seeing articles that talk about another mortgage rate increase coming by the end of the month. This time, the bank of Canada is talking about a whopping .5% interest rate hike. Today we’ll look at two different points of interest, One, how will it affect the market (demand and pricing) and two, how will it impact you, the buyer (or seller).
Firstly, rate hikes were inevitable. Early on in 2020 as the pandemic grew heavy on our country, the government was looking for a way to keep the real estate market alive and well, and it did so by bringing down the interest rates. By the start of 2021, we saw interest rates as low as 1.69%, something unheard of in the history of our Country. Fast forward to March 2022, rates are back up to 3.65% (Still historically low by the way.) and the feds just announced another interest rate hike of .5% which will bring us up to roughly 3.95% by the summer time.
The somewhat sudden change in interest rates will definitely have an effect on our real estate market in Quebec, but we won’t feel it (in my opinion) until spring of 2023. The demand right now in our province is so high in comparison to the supply available that it would take at least 3-6 months without any sales to get back to a balanced market, The rate hike will create a rush to get in before the expiration of buyers interest rates, causing heavier bidding wars until the summer and following that, we will see a counter effect which will be the lowering of buyers budgets and purchasing power (1,000,000 budget drops to 850,000, 850,000 drops to 700,000 and so on) which alone shouldn’t change the market, but coupled with psychological changes in what you can actually buy may slow down, or pull some buyers out of the market. Hence why I believe, by the fall market, there should begin to be an up-tick in available listings, coupled with less motivated buyers making for somewhat of a more balanced market.
When speaking about market values and pricing, I do not see the above mentioned changes having too much of an affect on our market. Prices in most neighbourhoods have risen anywhere from 20-50% since the pandemic began, Any analyst can tell you they see a price drop coming, but how much is the real question. My opinion? 5-10% at the very most. Prices will stabilize, and for the most part, what I expect to see is an asking price, with a 96-97-98% close-to-asking price. ration. (Example: Asking 500,000, sold at 487,000). Why? Because the price of homes won’t drop drastically, the demand will slowly decline, and in that decline we should be able to witness a slow-down in multiple offer situations making it such that properties sell just under their asking price, not at or above.
To sum it all up, how will this affect you? It probably won’t for the majority, Prices drop by 5%, interest rates at 4-4.5%, The changes will balance themselves out and essentially create a balanced/slight sellers market. Exactly what you are paying today for your property will still be the case, just you might be able to say “you paid under asking price.”
As our last article said, don’t wait to buy real estate, buy real estate and wait!