Part One: What's 'Real'-ly Going On In Our Current Market?
Thursday Oct 06th, 2022
It’s taken me a little while to chime in again on the current state of our real estate market. Being inside of it, day in and day out, I wanted to come to you with info to calm some nerves and give you perspective.
What’s with the Interest Rates?
Interest rates have gone up to tame Canada’s economic inflation. It’s not aimed specifically at the real estate market but we certainly are affected. And this is world- wide: Not only are oil, gas, lumber, food and wheat prices high, there's blow-back from the Ukraine war. Even supply chain management - availability of these goods - is slowing us down. If you’re building or renovating, you know exactly what I mean.
Finally, after months and months of trying to reconcile that things have changed since February or March of this year, Sellers have realistic perspective. Today’s market prices are a reflection of rising interest rates. And it’s ok - that’s exactly what was and is supposed to happen.
What’s Inflation got to do with it?
Inflation is the rate at which the general prices for goods and services rise in a given country. A small amount of inflation is usually viewed as a signal that a country's economy is growing and we have adequate income, both good things. However, excess inflation happens when prices rise faster than wages, causing currency to lose value.
Controlling interest rates is delicate dance - if rates go too high it will push us into a hard recession and that’s not what anyone wants.
Canada needs to be as close as possible to a comfortable 2-3%inflation rate. In July it was 8% down to 7% in August - we’re waiting on September’s rate. Interest rates will likely rise twice more this year. It’s interesting to note that the Bank of Canada is waiting longer between interest rate hikes than earlier this year – likely giving more time to see what the difference each one will make.
The Cost of Money.
For so long, at unprecedented low interest rates, we had ‘free money’ and we got used to it. No one ever thought it would end. Now, we have ‘cheap’ money – yes, it’s still ‘cheap’. Is it higher than ‘free’? Yes. And is it impacting our real estate market. Absolutely.
What's a Balanced Market?
Actually, we are always in a balanced market: If we sell at a high price, we buy at a high price. If we sell lower - we are buying lower. Because of the hyper inflated prices from 2020 through March of 2022., we sold crazy high and we bought crazy high. These prices were totally unsustainable. Adjustments take place all the time and just as we had to get our minds around those crazy inflated prices then, we’ve needed time to accept a changing reality where these prices come down in step with inflation. Important to note though, when prices rise rise on the selling side AND the buying side = a balanced market.
Now... Stay Tuned For Part 2!