This post is written on May 5th, 2022. No tequila involved, yet. Please remember to always discuss any personal Real Estate information with your representative, and if you don’t have one please contact me here.

The “Volume 1” edition of this post can be read here. That post, coincidentally as of today, seems to be agreed upon by the CMHC as per the Financial Post article regarding the housing crises – which can be found here.

A New Era?

There are deep conversations that can be had regarding government spending, handling of the pandemic, and many things in which I am no way qualified to write about. I bring this up because with inflation increasing quicker than the pencil pushers in Ottawa have anticipated, interest rates have done so as well. That effects lending, which effects mortgages, and well… the housing market as a whole. But to what degree of severity? Who is affected the most? What are the consequences?

Interest Rate Increases and Lending Practices Tightening

To be fair, we have had the lowest record interest rates (matching 2010) in history during the pandemic. Expecting 0.25% to continue, well, just isn’t likely. With inflation reaching almost 7% (6.7% as of April 20th) something needed to be adjusted to combat the rapid increase – in comes adjusting the Bank of Canada Interest rates, and altering investing practices and adjusting lending practices to safeguard investments. One thing the Government of Canada wants to avoid is the housing crisis in the USA of 2008.

So now we sit at 1% base rate which leads to our interest rates on mortgages jumping from under 2% (fixed) in some cases to around 4% (fixed) currently. Expect that to go up again this year, and possibly another 0.5% base from the Bank of Canada.

Besides the obvious effect – making monthly mortgages payments more expensive – what effect does it have on the housing market?

Big Impact on Entry Level & Investment Properties

Investors want a return on investment, and financially dependent buyers for first homes may not be able to afford the mortgage of a home at a certain price range they were searching. This has led myself and people I work with see a transition of the market from a home which used to be priced in the mid $200’s sell in 7 days for twice the asking price, to the same home sitting on the market past offer date without an offer (in some, not all cases).

The reality is there are less buyers, less competition, more houses due to the time of year, and expectations of sellers are still very high. The idea where you can pick any Realtor off the street and sell your home in 7 days may be coming to an end in this portion of the market. It will take strategy, marketing, Realtor investment and honest conversation of expectations to provide a selling client the correct path to success. Sellers may need to tamper some expectations, depending on their circumstance. The DOM (Days on Market) are increasing, List vs Sale ratio decreasing, and List vs Sale Price becoming closer to “Market Price”.

For buyers still in the market for a home between $250,000-400,000 there may be options for you! I suggest you talk with a Mortgage Broker, and get pre-approved with a rate locked in, and have a Realtor show you options.

Limited Impact on Premium Homes

The impact the adjustments have on homes of a higher premium are much more limited. The DOM (Days on Market) are still quite low, and buyers seem to still be readily offering. The List Vs Sale ratio is still very good. What this tells us, is the market changes due to the increase in interest rates doesn’t affect higher end purchases, as one may have assumed already.

So if you are in the market to sell a home in this range, you’re still in a really good place. Buyers will still face some competition.

So Where Do We Stand?

We stand staring into the housing market abyss wondering how we can make sense of it all, and, we can’t – entirely. There is no magic eight-ball. What can be done is exactly what is being done here – paying attention. Closely following the market will allow you to create a logical and concise plan in order to buy or sell effectively. The Government is going to continue doing what it needs to correct inflation, and that will continue to affect the industry accordingly.

I believe information is key to everything, and will sign off by saying: stay informed, and make excellent Real Estate decisions.

All data sourced from WECAR for graphs.