On Wednesday, the Bank of Canada (BoC) will announce its interest rate decision. While speculation is rife, no one knows his intentions. Your decision to raise or keep interest rates will have a significant impact on the real estate market. In the meantime, here are five things to remember.
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1. An increase of unknown magnitude
Will it be 25 or 50 basis points? Still, an eighth rate hike in less than a year would have a direct impact on financial institutions’ mortgage rates.
A year ago, the key interest rate was still 0.25%. Successive increases imposed since then have brought it up to 4.25%. The interest rates offered by the banks followed the same progression; with a term of five years, the fixed interest rate varies between 5.5% and 6%, the variable interest rate around 6.25%.
2. Falling house and condo prices
Any new rise in mortgage rates could lead to a fall in house prices in the short or medium term, said Hélène Bégin, senior economist at Desjardins Group.
Since the peak recorded last April, the selling price of houses and condos in Quebec has fallen an average of 6.9%, with even higher peaks in certain regions such as Montreal, Outaouais, Estrie and the Laurentians.
But regardless of whether or not we see another rate hike from Wednesday, everything indicates that the downward pressure on prices seen so far is likely to continue even stronger.
By the end of 2023, Desjardins expects resale market prices to have fallen an average of 17% from the peak in spring 2022.
3. The supply of houses and condominiums is increasing
Although still relatively small, supply on the resale market is tending to increase significantly. In addition to longer selling times than in the past, this increase is due to the sharp rate increases, which are forcing many owners to review their needs.
According to the latest data from iTerram, a real estate data specialist, the number of active listings for single-family homes increased by 65% in December, while the number of transactions fell by 32% compared to December 2021.
We’re seeing this trend everywhere, but particularly in the regions popular with vacationers, where second homes and condos bought-for-rent are legion, explains Royal LePage’s vice president and general manager for Quebec, Dominic St-Pierre.
4. Getting a mortgage harder soon?
With this in mind, the question for first-time buyers is: should we wait until mortgage rates come down again to start realizing the dream of owning a home?
If some believe it, others think the opposite. The Office of the Superintendent of Financial Institutions last week launched a broad public consultation on mortgage loan monitoring.
Given that the risks associated with these loans have increased significantly in recent years, it is time for a comprehensive review of existing measures, including the famous “stress test” that allows borrowers to qualify for a mortgage loan to undergo verification. Fearing a tightening of the rules, at the end of this consultation, which is due to end in April, some believe that waiting too long could, on the contrary, harm them.
5. No obvious signs of panic yet
Although financial difficulties are now forcing investors to revise their plans, Desjardins chief economist Hélène Bégin doesn’t expect the explosion in fire sales we saw in the early 1980s when prices topped 20%.
Dominic St-Pierre, Royal LePage’s vice president and general manager for Quebec, also doesn’t think another rate hike — an eighth in less than a year — could hurt real estate activity any more.
“The market has been sluggish since the third rate hike last June,” he notes. The market is already waiting in the adjustment phase. As buyers recalculate, sellers gradually agree to lower their prices. I don’t expect the next rate hike to change this situation significantly. »
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