What do you get when you combine a 30-year high inflation, a pandemic and Bank of Canada aggressively increasing rates? Let's find out.
1. Interest Rates
Interest rates will be around pre-pandemic levels (1.75%) by the end of this year. A sharp increase like this has not happened since 2005-2006. The rate hikes have been in place since fall 2021 but we haven't seen an immediate effect of that. The reason being that the borrowers have been switching to variable-rate mortgages. Those rates are still historically low but that won't stay that way for long. Variable-rate mortgages are going to become expensive with additional rate hikes.
2. Purchasing Power
The rising rates will obviously impact the purchasing power of the buyers. When (not if) the rates go up to its predicted levels by Q4, the median-income households' purchasing power will be down by 15%. So if you can afford a $1 million dollar home today, you can only purchase a $850k home in Q4 2022.
3. Ownership cost as a % of household income
Its high. Roughly around 49%. And with the current inflation rates it only seems to be going higher. A 1% increase in interest rates will translate to approximately $500/month increase in mortgage payments for a typical Vancouver home.
Demographic factors provide a healthy cushion. Millenials in their prime home-buying years and growing immigration will provide the boost for demand. So even though we might witness a price correction, we will not be seeing a crash or a freefall.
Inventory is still at historically low levels. With the rate increases and affordability declining short term, we can see a cool off period but it just will not crash the market, PERIOD. So if you are a seller and thinking about listing your home, don't think twice, you are still a HUGE opportunity as we are just starting to reach a peak price point.
3. Federal Incentives
First home savings account and housing accelerator fund will support the market in the long run.
Only time will tell exactly which direction the market goes but this is generally what the macro and micro-economic forecast is telling us. It is not all doom and gloom becuase these changes will lead to fewer price wars, more sustainable activity and some price relief for the buyers.
If you are looking to sell your home and need to bring it to market quickly and price it correctly, make sure you get in touch with me. Call/text me at +1-604-657-5004.
If you are a buyer and looking to take advantage before the next interest rate hike, make sure you get in touch with me. Call/text me at +1-604-657-5004.
Real Estate Expert
Engel & Völkers Vancouver