With the number of bombastic headlines and news articles regarding the recent interest rate increases, you might think that they came without warning. However, the Bank of Canada first announced a series of increases near the end of 2021 to try to balance the out-of-control real estate market and combat inflation. The first hike was set for early 2022, and it didn’t happen. This brief reprieve spurred on the already hectic market, and buyers competed even more fiercely to buy property before the costs of borrowing went up.
The first actual increase happened in early March, when the target rate increased from 0.25 to 0.50. On paper, the rate doubled. However, it was still so low that there was almost no effect on the market. Prices soared, and competition remained high.
The First Signs Of A Shifting Market
It wasn’t until two rate increases later that the media started to pay attention. Suddenly, homes that used to sell within days of listing took weeks. Then came the next hike in June that doubled the target rate once again, slowing the market even more.
Sellers were shocked and disappointed at not receiving multiple offers. And bidding wars? What are those? Now, there seems to be one question on everyone’s mind:
Is It Time To Panic Yet?
Some people are astounded at how quickly the real estate market has changed. However, nothing surprises you when you’ve been in the industry for as long as we have. We’ve put together this post as a guide to help you navigate the new reality, whether buying or selling. Though it may sound drastic to hear that the interest rate has more than doubled from its low in 2021, the rate is still lower than it has been in decades. Current fixed rates run from approximately 4 to 5%. Compare that to the almost 14% back in the late 1980s and early 1990s, and you have to agree that conditions are still pretty good right now!
What Sellers Should Expect
Are you thinking of selling your Collingwood home? The current conditions still favour sellers, and it remains an excellent time to list your property. That said, a few things have changed since the real estate market reached its peak earlier this year. It doesn’t hurt to reset your expectations so that you don’t feel alarmed or disappointed.
Here is what sellers should expect in the coming months:
- Prices have dropped slightly. You will simply not be able to command as much now as you could in January or February. But there is good news. The house you buy next will also have come down in price. All things balance out.
- You may not receive multiple offers. A few months ago, there were so few listings and so much competition that nearly every home received multiple offers. And they still happen, but not as frequently.
- Seasons have returned to the market. The non-stop pace of the post-pandemic market was never meant to last. Like every industry, real estate typically has busy and slow seasons. The spring market is hectic, and transactions often slow down in the summer and pick back up in autumn. It has been this way for decades.
- The process may take longer than you expect. The last two years have conditioned sellers to expect their house to sell within days of listing it. This situation is not normal! What we’re seeing now still indicates a seller’s market with the average listing at 13 days. Depending on your location, it may take longer, but there is no reason to worry.
- Proper preparations are critical for success. Last year, you may have gotten away with selling your home as-is. Now, if you want the best results, you’ll have to make an effort. Cleaning, decluttering and updating your home are more important than ever.
- A real estate agent is your best resource. As prices go down, it may be tempting to try to go it on your own. Keep in mind that you will earn more with a real estate agent in any market. In addition, working with a professional will take a load of work and stress off your plate and help you avoid making disastrous mistakes.
What Should Buyers Expect
The more interest rates increase, the more expensive it will be to borrow money. Whenever rates go up, most buyer budgets go down, which can make it challenging to find a house in your price range. And there are more interest rate hikes to come. The Bank of Canada is set to announce another increase on July 13, 2022.
What will this mean for you if you hope to buy a house in the next few months?
- It may be more challenging to qualify for financing. Higher interest rates and the new stress test changes may mean you will get approved for less. (The stress test is designed to protect you against rising interest rates and ensure you have enough income to cover your monthly payments).
- Housing prices are unpredictable. Some buyers are holding out to see if prices will drop even further. It may happen. It could also be that we are in a temporary lull before the cost of housing soars again. It is impossible to predict. The best time to buy a house is when it’s right for you, rather than trying to time the market.
- More listings and less competition. High prices and rising interest rates have pushed many first-time buyers out of the running. Many have put their homebuying aspirations on hold for now until the market stabilizes. As a result, there are more options available now than in the last two years.
- You may get away with conditional offers. A few months ago, you wouldn’t dream of submitting a conditional offer, not if you wanted any chance of the seller accepting. Now that the market is a little more balanced, you might protect yourself with a contingency or two.
Don’t Let The Headlines Scare You
Interest rates are still low, remember? Even if they continue to rise, there are ways to protect yourself. How? You might choose a fixed rate for the next 5 to 10 years. If you’re more of a risktaker, you can select a variable rate. Variable rates are almost always lower but will often fluctuate, so you’ll have to be prepared for changes in your monthly payments. A professional mortgage broker can walk you through the ins and outs of financing and help you make the best choice for your situation.
Whether buying or selling, a local Realtor® can guide you through the process and help you avoid making any costly mistakes along the way.
Do you want help from Keleher + Co. with your real estate questions? We are happy to point you in the right direction. You can set up a free, no-obligation meeting with us right here.
