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