Dear Clients, Neighbours and Friends,
As expected the Bank of Canada (BOC) raised its overnight rate by 0.75 bringing it to 3.25%. The BOC’s official statement noted inflation eased somewhat in July but was due only to a fall in gasoline prices while more broad measures of price growth like core inflation moved slightly higher.
The BC economy is at a critical point in its recovery from the COVID 19 induced recession of 2020.
As we move further into a post pandemic economy the trend away from goods and toward services continues. This shift has been helping many sectors recover and the BC economy was off to a strong start in 2022. However, rapidly increasing inflation shifted the economic outlook to fear of an impending recession. Thus, to quell inflation the BOC began a rate-hike program with rates exceeding 4% for the first time since 2010. Since hikes began, we have seen a slowing in all interest rate sensitive sectors in BC, most notably the residential housing market and residential construction.
Realtors began to feel sales slow across property types in March of this year with a month over month reduction in sales since then. In August, the Fraser Valley Real Estate Board processed a 51.3% reduction in sales compared to this time last year. Although shocks to interest rates are one of the largest contributors to fluctuating home prices, price adjustments have been slower to respond. Since July detached homes in the Fraser Valley have seen a 5.1% reduction in sale price, townhomes down 3.9% and apartments down 2.1%.
So, what does it all mean for those of us looking to buy or sell a home in the near future? And where is our economic recovery headed now that future rate hikes are expected to slow?
In early 2022, a homebuyer could easily borrow $500,000 at 1.45% for 30 years, which would cost $1,713 a month. After today’s rate hike, according to Graeme Hepworth the BOC’s risk officer, the average payment is likely to increase by about $200 a month.
Although recent times have been trying to say the least, financial observers have been speculating for years about a housing bubble and impending burst. Yet this hasn’t happened. In fact, despite the subprime mortgage crisis of 2008 home prices continue to rise.
The truth is, there is a wide spectrum of self-appointed experts who broadcast information about housing markets and the economy but not all possess a formal education in these areas. However, knowing what economists are saying is important because they can influence the economy itself – and by extension our decisions and the decisions of those in our community. The key is to be a critical consumer of economic information and to expose yourself to more than one viewpoint.
This is one of the ways a realtor can help. Realtors can also …
Compare up to 4 geographies at a time
- Filter search results by countless housing variable combinations
- Examine housing metrics as counts, medians and averages
- Customize price and square foot ranges
- And share all this information with you on your mobile device, in print or in email format.
In the meantime, while we all adjust to this new borrowing rate environment, here are a few things the Jenn and Colin Real Estate Team know for sure …
- Real estate has peaks and valleys but there has never been a future peak that is lower than the past one.
- Time can turn any bad real estate decision into a good one.
- Equity can supplement a pension and offer financial options in later years.
- A mortgage is a forced savings program.
So, if you are considering a move in the near future, we can help you understand market forces currently at play and help you identify potential opportunities.
Jenn & Colin