How To Navigate Rising Interest Rates In The Real Estate Market:

On October 26th, the Bank of Canada hiked the Overnight Rate. It was the sixth time this year the central bank increased the cost of borrowing money. You’re probably already aware this is dramatically impacting the price gains Ontario residential real estate saw in 2021 and early 2022. At a local real estate summit last month, we heard how peak to trough, the residential market had dropped 23% in value from February 2022. Essentially what we as realtors are finding is this, the combination of historic price gains with borrowing costs at 15x what they were a year ago has created a rebalancing effect. Perhaps an equilibrium is around the corner.

Real Estate Waits For No One:

What does that mean for those who have to make decisions today?

Buyers: 

Many of our Buyers want to know where the bottom is. In the past, Buyers had to worry about getting into the market before the price went up tomorrow. That situation has mostly reversed itself. One thing to remember is that Sellers may be sitting on significant equity gains; they may choose not to sell at all. As more people are priced out of real estate ownership, it’s placed growing demand for rental property. Sellers have an out and can rent their home for the time being if they can carry multiple properties. 

There is still a housing shortage in Ontario, we project that as the economy contracts in the new year, inflation will hopefully begin to recede and some rate cuts may be in order. As soon as loans become more affordable, house prices will start to rise. There is no lack of demand.

Sellers:

The quick pace of rate hikes means that on a variable rate mortgage, a 500k loan could now cost $975 more per month in interest than it did in February 2022. However, the only real change to the market structure is the rising interest rates. There is still a significant housing shortage in Ontario as evidenced by the increasing cost of rent due to ownership affordability. We are still seeing multiple offers on appropriately priced homes. Over the last three months, prices have stabilized with very small incremental gains in the single-detached sector.

There is an increased importance on marketing, simply posting photos from your cellphone and hoping for multiple offers doesn’t cut it anymore (it never did). The best way to capitalize on a sale is to provide an enticing vision of your home and help all parties to make comfortable decisions that propel them to reach their goals. This requires a more comprehensive need for exposure and a new appreciation for the lost art of selling -helping people make good decisions in the face of uncertainty.

Investors:

Real opportunities are starting to form, especially for investors with substantial capital backing. If inflation recedes in the New Year and the central bank begins to soften its stance on a restrictive rate policy, start planning for the next growth cycle. 

We’re always available to talk further. Have questions, reach any of the Benjamins directly!

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