Last week, the Bank of Canada dropped a bomb on what was already a softening real estate market. People were reeling from a series of interest rate increases beginning in March, which were not unexpected. Inflation is still rising, with out-of-control gas prices driving up the cost of everything from food and clothing to construction supplies. 

Raising the interest rate is one way for the Bank of Canada to try to slow inflation.

However, rising rates can have a significant impact on the real estate market. The last few months have been proof of this. Buyers begin to hesitate because of the higher cost of borrowing. Less competition means fewer offers, and housing prices start to fall.

Will this spell the end of the hot housing boom sellers have enjoyed for the last two years? Fear and hesitation have made their way into the market, but for the most part, there is no need to worry, not even after the last rate increase. What we can expect is a simple correction to a hectic market that was never sustainable.

The Numbers At A Glance

The year started with a target rate of 0.25%, a historic low put in place to boost the sagging economy brought on by the pandemic. This ultra-low rate worked better than anyone anticipated and triggered one of the most aggressive markets we’ve ever seen. 

As housing prices soared and inflation rose, the Bank of Canada had no choice but to raise interest rates.

The market cooled slightly in April but remained highly competitive compared to recent years. Everyone knew another increase was around the corner. We all held our breath for weeks as we waited for the Bank of Canada to make the announcement. We knew it would be a steep one, and the market braced itself for an increase of 0.75%. 

Instead, they dropped the news of a full percentage point hike in the interest rate. This is the biggest jump since 1998, bringing the target rate up to 2.5%. (Recent update: Since July, there have been several other increases. The latest 0.50 point hike in December brings the rate up to 4.25%.)

With everything going on in the market, it might be an excellent time to review some of the basics. Here are a few more resources to help you become an educated buyer or seller:

• Conditions And Clauses On A Real Estate Contract
• How To Stand Out In A Changing Market
• 7 Amazing Benefits Of Working With A Real Estate Agent

Balance Returns To The Market

At the end of the second quarter, the Canadian Real Estate Association (CREA) reported that there were 2.7 months of inventory available in the housing market. Under normal conditions, these numbers would look like a hot seller’s market. A balanced market takes place when supply reaches about six months’ worth. 

Compared with March, when inventory dropped to 0.9 months, this now seems like a balanced market. Homes take longer to sell, and multiple offer scenarios are no longer a sure thing.

A homeowner who had their property appraised at $2 million in February may feel dismayed that their house is now only valued at $1.8 million. They see a $200,000 loss, but they’re not seeing how much they stand to gain as the market corrects. However, the newly balanced market benefits everyone, especially sellers.

What The New Rates Might Mean For Sellers

News headlines are reporting that interest rates have “taken a hammer” to the real estate market. Prices will likely decrease a little further as the market continues to self-correct. And that’s a good thing. How? The previous scorching hot market was actually a nightmare for sellers who also wanted to buy.

Many homeowners found themselves priced right out of the market a few weeks after their closing date. This new balanced market gives you some breathing room. You have time to look at homes and choose something suitable for your family. And while you may earn less from selling your home, you will also pay less for your new home.

When you look at current conditions calmly, you’ll see that rising interest rates have little effect on existing homeowners. Even if you sell for less than you would have in February, your house is still worth far more than what you paid a few years ago.

What Rising Interest Rates Mean For Buyers

Buyers are panicking more than anyone over the interest rate jump, but they don’t need to. Interest might be higher now, but in March, the average price of a Burlington home reached $1.4 million! Now, housing prices are finally coming down.

Knowing your financing options is one way to shield yourself from higher rates. Read our interview with a top mortgage expert right here.

Buyers who are also selling are at a clear advantage as prices drop. Since interest is based on a percentage, the lower cost of houses helps reduce their monthly payments.

First-time buyers are the ones who will struggle the most with the higher rates. However, there are ways to offset the increased costs and resources available to help you. The best thing you can do is to raise as much as possible for your down payment. The more you pay upfront, the less you need to borrow. Your interest rates and your monthly payments will be lower. 

Under the Home Buyer’s Plan, you can withdraw up to $35,000 without penalty to put towards your purchase. You can also look into the First Time Buyer’s Incentive, a shared equity program where the government provides up to 5% of your down payment on a resale home or 10% on a new build.

You can also help offset higher interest rates by purchasing at the bottom or the middle of your budget. As prices decrease, finding homes within a lower range will be easier.

Whether buying or selling, there is no cause for alarm over temporary market corrections. Remember that housing values rise over the long term, making real estate one of the safest investments you can make. 

Are you ready to make a move or want to talk about what the current interest rates mean to you? We are happy to answer your questions. You can reach out to us right here.