The real estate market has always been unpredictable. The question on everyone’s mind now is whether the upcoming interest rate hikes will balance out the hot seller’s market we have seen over the last two years. Experts can argue and debate as they try their best to determine what will happen based on current events.
But as always, only time will tell. Some analysts believe that the demand for housing is just too great for the changes to have much effect. Others predict that we are in for a significantly cooler market.
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How Do Interest Rates Affect Housing Prices?
When interest rates are low, it makes borrowing money less expensive. A mortgage loan could total hundreds of thousands of dollars or even a million or more in Toronto. At that amount, even a single percentage point can mean the difference between being able to afford to buy a home or not.
In early 2020, the Bank of Canada lowered the interest to historically low rates to try to boost the economy during the pandemic. What happened next was one of the biggest real estate booms in decades. Buyers were frantic to get into the market while these low rates lasted and competition soared.
Nearly every listing sold within days, often with multiple offers and far over their asking prices. Bidding wars happened frequently, especially in tight markets like Toronto, where there are far more buyers than sellers.
People have been talking about the effect of interest rates on the real estate market for months! Here’s one of our earlier posts about the topic.
What Happens Now?
We expected interest rates to rise all through the first quarter of 2022. The already fast-paced market became even more competitive as buyers tried to get ahead of the announcement. When the increase finally came in mid-March, it was smaller than anticipated and had minimal effect. Every listing still attracted the attention of multiple buyers.
In April, however, the Bank of Canada announced a 50-point increase, the most significant rate hike in almost 20 years.
What is happening as a result? We have noticed a shift. There are more listings available, and the average time on the market has increased. Not every house sells for over the asking price, and bidding wars are happening less frequently.
It’s too early to tell if the shift is the result of the interest rate. It may be coinciding with the Spring market, which is traditionally the busiest time of year in real estate.
However, in June, we can expect another announcement from the Bank of Canada, which will likely signify another increase in the interest rate. If it is another significant hike, it could make the market more balanced between buyers and sellers.
Where Have the Buyers Gone?
For now, some of the competition has dropped off slightly, but it is still a very strong seller’s market. Some buyers have pulled out altogether as borrowing has become more expensive.
Some may seek to purchase outside of Toronto, where properties tend to be more affordable.
Others may sit back and bide their time to see if housing prices will come down.
Is it a Good Time to Sell?
Recently, many homeowners hesitated to put their homes on the market even if they were ready to move on. They had a good reason. It is painful to discover that a house in your neighbourhood sold for tens of thousands of dollars more a month or two later. The rapid increase in housing prices also makes it challenging to get back into the market as a buyer.
However, one thing that many analysts do agree on is that the rapid growth of property values is unlikely to continue.
In fact, if you have considered selling your home, this might be the best time in years. Why? There may be fewer buyers in the market, but with another interest rate hike on the horizon, they are highly motivated to act. At this point, the rates are still lower than they have been in decades, and homes are still moving quickly.
This means you’ll likely receive the highest amount possible while enjoying a fast and relatively easy sale.
Does the thought of listing your home on the market feel overwhelming to you? We believe that selling your home should be an exciting experience. Our mission is to take the stress out of the sale so you can focus on your next great adventure in life. Find out more about our process here.
