| Market Watch

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

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