January 27, 2023

Charging Through the Storm - Issue 345

The latest interest rate hike of 25 basis points is now old news. It was the eighth increase since March of 2022 bringing the BoC rate to 4.5%. You probably caught the Bank of Canada governor (Tiff Macklem) on the news this week signalling a pause with rate increases while the bank assesses the impact of all the increases on the economy. He indicated that he thinks the bank has done enough now and isn’t planning any further increases. However, if inflation doesn’t settle to around 3% by mid year…. all bets are off.

Turning to the real estate market, you can expect with another rate hike that it will be all doom and gloom.

I’m not buying that storyline.

Here’s why.

The market feels slow and, admittedly, there is a lot of apprehension and questions about the direction of the real estate market. This past week the Canadian Real Estate Association (CREA) released their January 2023 market forecast. Nationally, CREA is calling for a decrease of 0.5% in units sold in 2023. 495,858 units compared to 498,269 units in 2022. The chart below shows historical sales in Canada from 2000 through to 2022 in light blue. The forecast for 2023 and 2024 is dark blue.

*Historical Sales in Canada (2000-2022)*

The interesting line is the 10 year average sales line. 7 of the last 10 years, sales have been above the trend line with 2021, like everything real estate that year - blowing through all the averages. We’re really not that far off the 10 year average. It just seems like the market has died because of the well above average activity in 2020, 2021, and the first half of 2022.

2024 is forecast to be above the 10 year average. This reflects the growing population and large demographic of the latest generation of home buyers. Given how long it takes to get new developments off the ground and given the current inventory levels are still well below average, I think you can connect the dots to see that there is not a tremendous amount of downward pressure on prices.

Certainly there is still risk in the market.

I’ll argue that most people knew rates had to go up and the previous high levels of sales was sustainable, which means most, if not all, of the “bad news” associated with increased interest rates has already been absorbed and priced into the market.

So the question you need to ask yourself is: how confident are you with your financial health?

The FOMO (fear of missing out) has been exorcised from the market which means a more rational and logical market to be buying and selling in. What a lot of people in the past few years have forgotten is that real estate is a long term investment. Buy and hold. It’s not meant to be traded like a stock. I’ll take a steady 5-6% increase in value over the long term, especially when it's something I can live in at the same time.

Buyers and sellers sitting on the sidelines in fear of a collapsing market, may find themselves missing the very opportunities they’re hoping for.

An interesting side story about the “charge the storm” tagline we’ve been using at Keller Williams. Most animals when faced with bad weather will either try to shelter themselves or get out in front of the storm. The Bison seems to be one of the few to have figured out the quickest way out of the storm, is to face it and charge through it. Click here to learn more about the Nature of Bison.

Enjoy the weekend. Spring is only 52 days away!

Paul