We have several wars going on right now. We have the tariff war with the United States, which is putting pressure on prices here in Canada. We have the war with Iran, which has driven up oil prices, causing more inflation. And then we have the overall war against inflation, which we just can’t seem to get under control. And now, for the first time in over three years, we’ve seen the Bank of Canada increase interest rates.
Higher interest rates put pressure on real estate, and not in a good way.
We already have a very slow real estate market. In September, home sales in Ontario were 21% below the ten-year average. I wouldn’t say our market is broken, but there’s no question it’s struggling.
So, will the added pressure of increasing interest rates finally break our real estate market here in Ontario?
My point of view? No.
And why would I say that?
In any market, some buyers and sellers will be in a more advantageous situation. If you’ve had your eye on a bigger home, here are The Benefits of This Changing Market for Upsizers.
No End in Sight for Supply Issues
Because at the same time that inflation, high construction costs, job instability and a lack of buyer confidence are hurting our real estate market, they’re also discouraging builders from building.
CMHC is forecasting that new home construction starts in Ontario will fall to nearly twenty-year lows.
And what does that mean for the future? It means we’re not building the homes that we’re eventually going to need.
People always need somewhere to live. We’ve cut immigration, but we haven’t stopped it. And realistically, Canada needs population growth to support our economy. Those people are all going to need somewhere to live.
And then we have the people who would normally be buying homes but are sitting on the sidelines because they’re nervous about the economy, their jobs or where real estate prices are going.
Eventually, when buyers start feeling more confident, when they believe the market has stabilized and prices may start going up again, they’re going to come back into the market.
But here’s the problem. Builders can’t just turn around and instantly replace the housing they haven’t been building. It takes years to plan, finance and build new homes.
Are you seeking to buy a house in a challenging market? Information is power, and you’ll get plenty of insight in the posts below:
- Real Estate 101 for First-Time Buyers
- Can You Buy a House With a Poor Credit Score?
- Buying an Older Home? Here Are The Red Flags To Watch Out For
Will Real Estate Boom Again in the Near Future?
Do I think we’re going to see another big real estate boom? No, I don’t.
I think we’re probably going to see the market move sideways for a while. Prices may remain fairly level, maybe increase modestly, and sales will gradually start to improve as confidence comes back.
I don’t see us going back to the kind of market we had during COVID, and frankly, I don’t think that would be healthy anyway.
But I do believe that, eventually, we’ll get back to what we’ve always considered a more normal real estate market.
So no, I don’t think rising interest rates are going to break our real estate market. They may make an already difficult market even more challenging in the short term. But at the same time, the slowdown in construction could be setting us up for a very different problem in the future, and that’s not having enough homes when demand returns.
In spite of market uncertainty, many people find themselves needing to move for a variety of reasons. If you want the absolute best results when buying or selling, our top Guelph real estate agents can help. Reach out to info@gowylde.ca or call 519-826-7109 for more information.
