If you walked by the Bank of Canada today, you might hear.
I’m goin’ up, goin’ up, I’m goin’ up (ooh)
It’s ’bout as bad as it could be
Seems everybody’s buggin’ me
Like nothin’ wants to go my way
What happened to Interest Rates in 2022
On October 26, the BOC raised the overnight interest rates for the 6th time this year. In this recent hike, they went up 50 basis points, so from March to October, the interest climbed from .25 to 3.75. The good news if the amount each time seems to be decreasing from September’s 75 basis points and July’s 100 basis points.
The 50 basis points were at the lower end of what analysts were expecting, with many predicting 75 basis points. The BOC indicated that they would continue to fight inflation with rate hikes, but we could be nearing the end with future hikes of less magnitude. The next BOC interest rate announcement is December 7, 2022, So how is this going to affect the housing market? Are we going to see prices fall even further?
What impact does this have on the Real Estate market?
In the last 6 months, 50% of Canadians opted for variable-rate mortgages; these homeowners will feel the immediate effects of the dramatic increase in rates over the last 7 months. A hybrid mortgage is a variable mortgage with payments that remain the same; the amount of principal you are paying off varies monthly. Some of these owners are now hitting their trigger rate, meaning your monthly payments are no longer enough to pay the interest on your mortgage. At that point, the financial institution will notify you that your monthly payments are increasing. People with fixed-rate mortgages that are coming up to the end of their term and have to renew will also see their payments increase.
Housing is a highly interest-sensitive market. Ontario, GTA, Guelph, and the Tri-cities have all seen significant pricing decreases and a dramatic decrease in the number of sales since interest has started to increase this year. But demand has not dried up.
What mortgage should you choose; fixed, variable, or hybrid?
Millennials are staying living at home longer. Over 500,000 people in Canada are turning 30 years old each year, which is the prime age to get married and start a family, not an ideal situation for mom’s and dad’s basement. We will also see increased demand from immigration and low housing affordability, further damaging our overheated rental market, and causing rents to go up. At a certain point, it makes no sense to pay high rents, and renters who qualify will jump back into the market. Even Doug Ford’s new housing initiative isn’t going to relieve the housing shortage. At the same time, we now have over 50% of economists saying we will enter into a recession in early 2023. This will cause the BOC to temporarily pause interest rate hikes or risk driving us into a deep recession. It is estimated that 2nd half of 2023 or early 2024, interest rates will start to go down.
Let me give you my opinion on what impact this will have on the Guelph and Tri-city market. In the next 3 months, the market will be slow. November and December and the first two weeks in January seasonally are the slower period where we see both sales and prices soften. This year they may be slower than usual, and prices may temporarily dip during this period. There probably won’t be many homes on the market, but it will be a fantastic time to buy. Buy while prices are low, and lock into a variable or hybrid variable mortgage. Most economists agree interest rates will come down 2nd half of 2023 or 2024. If you are really worried about your payments increasing and are more comfortable with a fix-rate mortgage. I recommend a maximum two-year term. Prices are getting very close to the bottom, in my opinion. We may see prices go up modestly next year. But at some point, the demand will kick back in, and I think housing prices will start rising again.
Should you buy or sell in this Market?
Now is an opportune time to buy real estate, but it will not last forever. You are way better to buy when low prices and interest rates are high than the inverse. In the current scenario, your down payment on the home you purchase is lower because the home price is lower. Houses selling at around one million would require a minimum of 20%, many are now selling under one million, and there can be purchased with less than 20% down. If you are upsizing, the gap between what you are selling and buying is less. If you are an investor, rents have gone up significantly over the last year, and there will be increased demand for rentals over the next several years, making it a good time to buy.
What happens if there is a recession next year, won’t housing price crash?
According to a recent survey, about one-third of economists believe that a recession will occur sometime in the upcoming year. The majority of them currently believe that it would be brief and shallow. During a recession, typically, all prices fall, including housing. In the recession of 2008, house prices fell 9.5 %, and they went back to 2007 prices. In Guelph, we have already fallen by 21% and currently are at 2021 prices. In my opinion, they wouldn’t fall much lower, if there is a shallow recession. We also have a huge backlog of demand, and it will only increase over the next few years. If you have a stable job and are in an industry less likely to be affected by a recession, my opinion is now is a good time to buy.
In every market, there are opportunities; you have to know how to recognize them and be smart enough to act upon them.
At GoWylde Real Estate, we have helped countless clients in the Guelph & Tri-city area over the years. We’d love to help you too!
Reach out to us today or call 519-826-7109 to get started or with any questions you have.
GoWylde Real Estate is the 2023 winner of the Consumer Choice award for excellence in the category of real estate.
