If there’s anything we can count on in the modern age, it’s the fact that the real estate market isn’t going to disappear from the news headlines anytime soon. Whatever happens, it seems that it’s all anyone can talk about. (Or perhaps, as long-time Realtors® in Guelph and the surrounding areas, it’s just us!)
The specifics change, but there does tend to be a common denominator throughout every situation. In good markets and bad, the latest interest rate always seems to be a driving factor. In this post, we’ll investigate the impact of interest rates on real estate.
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What Happens When Interest Rates Rise?
Every few months, like clockwork, the Bank of Canada will make an announcement regarding mortgage interest rates. Sometimes, the effect is immediate and predictable. Other times, it seems to defy any and all expectations.
Generally speaking, however, when Canadian mortgage rates increase, the demand for housing falls, at least temporarily. Buyers begin to consider whether they should continue with their plans to purchase or wait for a better time. If too many people move to the sidelines, it can lead to a softening market and lower prices.
When values fall to a certain point, there is renewed interest, and activity can pick up once again. Real estate really does work in cycles.
What are the secrets to a successful home sale regardless of what is happening in the market? Find out in the posts below:
- What Are the Best Ways to Increase Your Home’s Value?
- Why Landscaping Matters When Selling Your Home
- Home Inspections: Friend or Foe When Selling Your Home?
When Mortgage Rates Fall
Falling interest rates often have the opposite effect. Even at higher price points, a house could still cost less over the long term due to lower borrowing costs. If rates have been high, a drop can trigger renewed excitement in the market.
If there are buyers who previously put their plans on the back burner, they often come out in full force to resume their search. Houses that were selling slowly start to sell quickly, and competition returns to the market. As a result, prices can begin to climb again, and some sellers may even see multiple offer scenarios.
Why the Constant Changes?
Why doesn’t the Bank of Canada just make an announcement that interest rates are going down in Canada and staying there once and for all? From a real estate perspective, this would make sense as it tends to lead to a healthy, robust market.
However, there are other factors at play, and whether or not houses are selling isn’t the only consideration. Financial analysts monitor inflation rates and consistently work to keep Canada’s economy strong and under control. As consumer activity heats up, many households are tempted to take on more debt than they should. The central bank will then try to curb the spending by raising interest rates.
When the economy takes a downturn, they’ll often choose to lower rates to encourage more spending. Inflation and the economy are never set; they are influenced by global factors beyond anyone’s control, and the best they can do is observe the situation and adjust accordingly. With each decision, the impact on real estate can be swift and dramatic or barely noticeable.
Looking for some tips for a successful home purchase? You’ll find plenty in the posts below:
- Should You Look At Listings In A Termite Zone?
- Checklist for Buying a Home
- New Build Vs Resale Home: What’s Better in Today’s Market?
Every Situation Is Nuanced
Depending on what side of the market you are on, changing interest rates really can be a double-edged sword. If you’re trying to sell during times of high rates, you may have to offer more concessions to appeal to a buyer.
The upside is that after your house sells; then you re-enter the market as a buyer in favourable conditions. You can take your time, hold out for the perfect opportunity, and negotiate from a position of strength.
If you’re buying in a seller’s market, all factors seem as though they are working against you – unless, that is, you have a house to sell first. With the proceeds of a record-breaking transaction in hand, you can move confidently towards your next steps even if conditions are competitive.
First-time home buyers are one segment of the market that can struggle during any situation. Higher interest rates can often negate any advantage you may have when prices are low. The trick is in having expert guidance from beginning to end, someone who can help you capitalize on all of the available resources and negotiate on your behalf.
The Value of Local Expertise
Whether you’re about to embark on your first home purchase or you’re selling to upgrade once again, an experienced real estate team can work with you to negotiate the best possible value. Every situation is different, but there are always countless ways to maximize your results when buying or selling.
The first step is to sit down and have a realistic conversation about the market and what you can do to reach your goals. When you’re ready, our team will be here to guide you and advocate for you at every turn.
Are you planning to buy or sell a house this year? Our top Guelph real estate agents are here for you every step of the way. Reach out to info@gowylde.ca or call 519-826-7109 for more information.
