October 21, 2022

Affordability: Part 2

Last week, we looked at what the cost was to purchase and own the average home in Guelph.

This week, in light of pending rate increases and a lot of media talk about variable rates, we thought we’d take a look at what has happened with interest rates over the last 25 years and you might just be surprised at the results.

I’ve spent the last couple of days in a conference room with a lot of smart, smart people in the real estate world.

The overall consensus is that this is going to be a very challenging time for real estate over the next 12-18 months. The fight to contain inflation is going to turn real estate into collateral damage and that’s probably by design as well.

First, let’s cut through the chaff in the market.

Interest rates are on the rise, while both variable and fixed rates are rapidly rising from the ultra low rates of a few months ago. The chart below shows the fixed and variable rates over the past 25 years. Today’s rates are just approaching the historic average rates.

Those smart, smart people in the room this week are acknowledging that the market will be tough over the next year and its not just because of the interest rates. What will really drive this market is the confidence level of buyers and sellers, or lack thereof.

There will be a lot of opportunities in this market. People will have to look through the doom and gloom to find those opportunities. Yes, some people have made some bad decisions in the past 12 months, caught up in the hype of the market, overextending themselves, and buying more homes than they needed, or should have.

I’ve been in a market like this in the past.

Indulge me for a moment in sounding like one of those old men on the muppets, but I’ve seen this show before. The early 1990’s, in fact. That was a painful market. It was also a market that held a lot of opportunity and helped people build a lot of family wealth.

This market won’t be much different.

If you ignore the noise and look at the math (look at last week’s post on affordability) there are opportunities available, and there will continue to be opportunities.

Yes, interest rates are increasing the monthly cost of financing your home. The offset with prices having dropped by roughly 15% means there is less down payment required and less to be financed and, as last week's post showed, reduced the overall cost to own.

The problem with this is that it doesn’t make for a good headline. Follow the math and make decisions that are right for you and your family, rather than just following the headlines. You won’t regret it.

Thanks for reading and have a great weekend.

Paul

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SEPTEMBER 2022 MARKET REPORT

THIS REPORT CONTAINS

September summary & analysis for Guelph
Neighbourhood breakdown for Guelph
Full home type breakdowns for Guelph, Kitchener, Waterloo & Cambridge