April 20th, 2022 | Market Watch

MARKET UPDATE | Bank of Canada and Interest Rates

April 13th

Yet again, all eyes were set on the Bank of Canada on April 13th as they were set to make its next rate announcement & provide its economic outlook.

Why was there so much buzz around this announcement in particular, you ask?

• Because the BoC was set to raise, and did raise its rate by 50 basis points for the first time in 22 years!
• Placing its policy rate at 1% – or 0.75% higher than its 0.25% policy rate at the start of January
• The rising interest rates will naturally have an impact on Canada’s borrowing market, and in turn, the mortgage & housing markets
• The common hope being that ‘this will remove buyers from the market’ and help ‘tame frothy housing prices’
• The gist being – with rising rates, Buyers can afford less, Sellers will have to accept less, market will cool, prices will fall
• And so far, it’s true, mortgage rates are heading up, and we’re seeing a lot of folks deciding to lock in before they go any higher

What we’re seeing on the ground:

• Jan/Feb this year were, in short, nuts
• Comparable to 2017 in many ways
• Specifically, red hot from Jan into mid-to-late Feb
• The market then quickly cooled, as it did back in 2017
• The cooling came on the heels of what many (including myself) deemed unreasonable growth
• We saw nearly 30-50% growth, compounded yr/yr from 2020-2021 and then again from 2021-Jan/Feb 2022 – too much, too fast (IMO)
• This then, made banks, policy makers and most importantly, Buyers & Investors, quite weary
• The writing was on the wall
• The BoC had announced they would adjust rates in 2022
• They did – first round was in early Feb on the heels of its first Monetary Policy Report announcement in Jan
• And while they had intended on increasing rates later in the year
• Canada (as you know) follows the US
• US Fed had to (and continues to pursue) raise interest rates – sooner – to battle inflation & issues with trade (currently at 8.5%)
• So Canada followed suit

But what does this all mean?

• Let’s cut to the chase – good news is, buying will be cheaper, in the core, likely 10-15% adjustment as we progress into the summer months – I consider this less of a correction and more of a reversion to Fall/EOY 2021 prices (which makes sense)
• Outside of the core (i.e. Halton, Durham, Peel etc.) – we could see 20-30%++ adjustments in the next 6-9 mths
• I say “could” as nothing is certain and there are too many variables
• BUT, if we do see a correction of any kind, the outskirts are far more at risk – as people purchased in haste without looking at the fundamentals
• The core did not increase 20-30-40-50% in 18-24 mths .. but some of those regions I mentioned … DID!
• For example: Ajay property sold for ~2M while in 2019, that same property sold for 1M
• Another example: Milton property sold for ~1.6M, while in 2018, that same property sold for 500K
• With all due respect, people, Ajax and Milton are NOT Toronto – they will never garner the same demand and investment potential, plain and simple
• The issue isn’t prices going up … the issue is prices going up too quickly
• So, it is our opinion that for the most part, core properties are ok … and you won’t notice much of a difference overall
• But, as you move further out … the ripples will be felt as the market cools, and dare we say, corrects

The way Amir likes to think about it is like a reverse earthquake … the largest shock of any market corrections will be felt in regions like Halton, Durham, Peel, Kitchener, Hamilton and so on … but the aftershocks will be much smaller … and cause far less damage vs. the main event

IMPORTANT LINKS:

• For the Press Release – CLICK HERE
• If you’d like to know more about Amir’s take on the Bank of Canada and Inflation, check out our blog post HERE