Interest rates rising - what it means for real estate?

Today Canada announced it’s current inflation rate is at 7.7%, up from 6.8% in the previous period. It was expected to be at 7.4%. Given today’s inflation rate you can expect a .75% hike in the next Bank of Canada meeting July 13th, where they may raise the benchmark rate to 2.25% from 1.5%. 

The cost of borrowing is going up, which has translated into fewer bidding wars and more inventory for buyers. Sellers are slowly starting to manage their expectations given the peak prices we saw in February and adjusting for today’s balanced market. 

In terms of price, some local markets have already seen a 15% decrease in prices from the peak but overall, the average home prices are still up 9.4% compared to this time last year.

With each interest rate hike, a buyer’s purchasing power diminishes. The question becomes: do you buy now and lock-in at a decent mortgage rate or wait for prices to go down more but deal with higher interest rate payments? The answer depends on your investment time horizon. 

Before BOC’s rate hikes, buyers took advantage of very low rates, and bought to the point were they were fearful of being squeezed out of the marketplace, now they are fearful of spending too much on a home and dealing with high mortgage payments.

While we are faced with a hard to predict market, two things that will for sure put upward pressure on prices in the long run:

1. Developers realizing their cost is going up and deciding to slow down on new projects, some even cancelling due to decreasing profit margins, which will impact new inventory.
2. Increase in population as Canada welcomes 500,000 new immigrants, naturally these folks want to own a property one day. 

Our advice for buyers is to get pre-approved with a three month commitment from lenders. During which you do your homework on home prices and explore your options. The inventory is up, you didn’t have this much choice before. Take advantage of this and find your dream home.

If you are a seller, we need to adjust for today’s market, and price accordingly.

More inventory means more competition. Buyers prefer turn-key homes so improving your home will go a long way. You can look into things such as upgrading kitchens, bathrooms, floors, roofs and windows. Doing a pre-inspection report would also be beneficial to both parties, and avoid re-negotiations. 

Whether you’re buying or selling a home, make an informed decision by doing your due diligence.

Contact me today to book your free consultation.

Ross Talibov, CNE, B.Com - Law and Business

Direct: 647-787-8979

Broker, Forest Hill  Real Estate Brokerage Inc. 

Founder, Soldhistory.ca