Is Inflation Impacting Real Estate?
The Bank of Canada has sent a clear message to Canadians as it executes the most aggressive round of tightening in the Country’s history and increases the bank rate by 50 basis point, it’s sixth increase this year. A recession here and around the world seems inevitable as borrowing rates reach levels not seen in decades. A 5-year fixed rate mortgage is now reaching over 6% and variable rates are reaching above 5%. Private lending rates have also increased, but at a more modest pace.
The Canadian Real Estate market is also feeling the impact with increased listings and a significant reduction is sales. Prices have begun to soften, more so in some areas and most homes are selling under the list price. Real Estate developers have also begun to delay and/or cancel projects. Governments are not helping, and they continue to be a huge part of the inflation problem. As the Country enters a recession, Government budgets will become strained, especially in BC where a huge percentage of the Government’s revenue comes from taxes on Real Estate.
That being said, there are some reasons to be optimistic. Rental rates have increased significantly and is allowing many property owners to meet their increased expenses. Metro Vancouver’s rents are some of the highest in Canada and it’s allowing many investors from having to sell their property.
The Bank of Canada’s tightening is beginning to work, and the inflation rate has already slowed and is expected to fall further over the next few months. This should provide some relief of further rate increases and possibly allowing the Bank of Canada to start easing monetary policy next Spring.
If your mortgage is up for renewal try to avoid locking-in to a fixed rate beyond 3-5 years. Variable rates are still great options for some borrowers, but caution to the Bank/lender you consider. Some mortgage lenders will increase the payment with the increase in rates, but do not lower payment when the rates begin to fall. Check with your lender before making decisions.
Minimize borrowings as much as possible. It may be better to take some equity out of your home rather than carrying balances on credit cards. Many private lenders are sitting on a huge pile of cash and are eager to lend out the money.
If you have a pre-sale purchase completing soon and the bank said no, don’t stress. There are plenty of options to help get the deal completed.
Did you know: In Scotland, homeowners have been known to paint their front door red when they pay off their mortgage.