Given the BOC’s recent signals that QE is over and that rates will be going up earlier than previously expected, the media narrative is showing signs of change. We’re now seeing more and more articles talking about a market cooldown or of price growth slowing. A blog post on Toronto Storeys exclaims that even if we do get a serious 50% crash in prices, we’d be where we were in 2014.. such has been the growth in valuations. Inflation is no longer temporary, as we all now know and as Tembo expected, so higher rates are now not only strongly anticipated, the question is will they come in the Spring? Or will they come earlier?
The changing media narrative reflects the growing uncertainty that high inflation and a now uneasy central bank are bringing. The worst case scenario experts and housing watchers consider is if significant rate hikes in quick succession rapidly precede a large amount of mortgage expirations and renegotiations – in other words, can people handle the higher borrowing costs? We have to keep in mind that even if rates go up, mortgages get harder to snag, and prices fall, there will be a significant number of buyers who have been waiting for more affordability and who have been more conservative in their lending and debt accumulation. If investors still have access to the market, many will see all of these conditions as ripe to buy, so a worst case scenario actually presents opportunities for many.
What does matter is how the more bearish outlook that we’re seeing affects mentalities and perceptions. Interestingly, all the hubbub has some real estate professionals advising their clients to sell now and take advantage of high prices before uncertainty kicks in with force in the summer and to take advantage of currently low supply (we don’t know how bad inflation will be by then, and we don’t know how aggressively the BOC will raise rates when push comes to shove). In a recent Royal Lepage survey of 950 real estate professionals across Canada, 79% said they would recommend selling this winter, given the current strength of the seller’s market. This is 15 points higher than the 64% who recommended listing in the winter before the pandemic. Never a dull moment in Canadian real estate!