October 25th the Bank of Canada released their highly anticipated announcement about interest rates and, as anticipated, they decided to hold their target for the overnight rate at 5%. Although this is disappointing for some buyers looking for lower interest rates, it isn't shocking. When will interest rates start to come down? Well, hopefully the rates will begin to drop starting in 2024. Randall Bartlett, senior director of Canadian economics at Desjardins recently shared his thoughts as follows.
“It seems that the Bank is confident it has done enough to gradually bring the Canadian economy back to balance. And we agree.
For now, the Bank of Canada is in a waiting game to see the impact of past hikes on economic activity, he added.
“Once the Bank’s satisfied that the economy has slowed enough to support a gradual return of inflation to its two per cent target, we expect it to begin cutting interest rates. This may happen as early as the first quarter of 2024,” Bartlett wrote.
For now, the Bank of Canada is in a waiting game to see the impact of past hikes on economic activity, he added.
“Once the Bank’s satisfied that the economy has slowed enough to support a gradual return of inflation to its two per cent target, we expect it to begin cutting interest rates. This may happen as early as the first quarter of 2024,” Bartlett wrote.
What does that mean for the real estate world? For realtors like me, knowing spring/summer is always the busiest time of the year, it means that with interest rates starting to drop, we are going to be working overtime in 2024.
The moment interest rates start to fall, all the buyers who have been waiting to make that move, will start shopping. There is no forecast that shows increased supply (more homes coming to market). In fact, more out of province buyers are still moving in, while home owners are staying put. With continued low supply, prices will start to go up yet again.
We complain in Calgary about our prices here in the city but we are still considered one of the most affordable cities to invest in and move to.
Check out these stats:
Calgary has the second most affordable housing market – behind Edmonton – of all major Canadian cities (Demographia International Housing Affordability, 2023 Edition).
Calgary has the lowest cost of living of the five Canadian cities – Ottawa, Montreal, Toronto and Vancouver – included in Mercer’s 2023 Cost of Living Index.
Calgary is among the world’s top 25 most affordable cities for housing, compared to 94 cities in Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom and the United States (Demographia International Housing Affordability, 2023 Edition).
Crazy, right?
That is why we are seeing so much migration to our beautiful city. Buyers who are cashing out on their major gains in other provinces are coming to invest here, often buying with cash, pushing many buyers to feel they need to cut corners in order to get a home. (Not recommended but that's another blog about how to stand out in a crazy market and score a home even with conditions.)
What's another problem we are facing in this city that is causing people to start saving for that downpayment? Major rental rate increases. Rents rose 18.4% this year.
That's insane.
We have seen an incredible shift in a market that many people have now found themselves stuck in. Rent has gone up for a couple reasons. Mortgages are more expensive, low supply, higher demand, and opportunity. Period.
So what should you do? If you are stuck in the rental rat race, I would suggest a couple things. Get in touch with an incredible mortgage broker and figure out exactly where you stand and what you need to do to be ready to buy your first home. Make that plan. Set the goal.
Manage your expectations for your very first home. We are no longer seeing as many buyers start out with a stand alone home. In fact, you may start with a one or two bedroom condo. But whatever you do, stay within your budget, put your monthly cash flow into your own investment and remember, this is a step forward to where you want to be. If you can make your investment this winter, do it. The market is quiet(er) right now. Discuss variable mortgages, or shorter mortgage commitments so that when rates drop, you can reap the benefits immediately as well as enjoy the equity you will build as the market takes yet another upturn.
If you want to discuss your situation more specifically, give me a call. Professionals are here waiting to help guide you to every resource you need. Take control of your money. Get informed. The biggest moves of your life always start out with a conversation.
Lindsay Winship
Winship&Associates
403-831-3303
lwinship@royallepage.ca
