How Are Rate Hikes Impacting the Housing Market?

Yesterday the Bank of Canada raised interested rates by 0.5% or 50 basis points.  This in a way is bittersweet as many presumed they were going to raise them 0.75%.  The Bank states they are trying to slow down inflation, and I don’t want to get into the whole debate about slowing down or “killing” the housing market with comparisons to what happened in the 1990’s.  For those of you too young to know or have tried to erase it from your memories – rates went up to 18%.  My first mortgage was 10.5% in 1987 and I felt lucky!

We in the industry and those looking to buy and sell are obviously in unique territory that we have not seen for many years.  Interest rates going up, prices coming down, and transactions way down.  The interesting thing is that from a global perspective, we still have plenty of immigration, a large housing shortage in Canada, Ontario and Toronto, and massive disruption around the world, which has highlighted how Canada, and specifically Toronto, continue to be a safe havens to live and invest in real estate. All signs for a fundamentally strong and resilient housing market.

Before the October sales numbers come out late next week, I took a snapshot of housing activity in the C02 area.  I like this range as a snapshot because it covers different areas from smaller semis to large luxury homes.  Below is a chart showing sales in the first 26 days of October compared to 2021 and 2020 and the sales in January, February, and March of this year.  Dollar sales show what we have been seeing on the ground; Prices are closer to 2021 on a high end and even closer to 2020.  We are not witnessing the usual 6-8% increase every year right now, and compared to February 2022, which was the height of the market, we have seen a 29% drop in prices. 

But as I have said, it is not correct to use your best month or best score as your basis.  Interestingly, Days on Market (DOM) have remained low at about 20-24 days on average and in October so far it has been an average of 16 days. Other than price, unit sales are way down.  20 sales this month compared to 42 in 2021 in the same time.  This is showing a huge contraction in the market as there are less buyers but also less sellers.  There is a strong “wait and see” attitude.

What does this tell us?  Prudent, realistic pricing will still get the sale.  For the buyer, they are able to take a bit more time as some of the pressure of purchasing is gone and there are far fewer bidding wars to compete in.  The end user who is looking to live in their home for 5+ years will see their investment increase reasonably.  Hopefully we are moving into a more balanced market where mass fluctuations in ask and sale prices won’t exist.

Commentary by Joseph Robert, Broker of Record