October 26th interest rate hike announcement

On October 26th, the BOC announced *another* rate hike. Here’s what it means for real estate (and you).

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Here we go again.

On October 26, 2022, the Bank of Canada (BoC) raised its benchmark interest from 3.25% to 3.75%. This latest increase comes after multiple rate hikes from the BoC since March.

The BOC’s goal is to tamp down persistent inflation by making it harder to borrow — and spend — money. This is an economic strategy that’s meant to arrest the problem of too much cash in the marketplace going after too few goods.

Will this have implications on the real estate market in one of its busiest seasons of the year? Absolutely. Is it all bad news? Not exactly.

TL;DR – Here’s a quick summary of the Oct 26th rate hike and what it may mean as you consider buying, investing, or selling a home.

  • Buyers continue to hold more power in this market, even in Vancouver and Toronto 
  • Buying is still cheaper than renting in many markets
  • When it comes to financing, it’s more important than ever to do your homework
  • Interest rate hikes are causing more caution among sellers, but buyers are taking advantage of their position in negotiations

Real estate (right now): What’s trending?

If you’re worried about this even-higher interest rate, we have some good news: according to Properly’s pricing expert Arieh Dales, buyers have a lot of power in a market like this — and that power seems to be growing.

“More buyers are adding conditions for financing and inspections in their offers, and those conditional offers are largely being accepted. Even more stunning — considering how little power buyers had at the start of the year — is that many sellers are accepting concession requests after these inspections are done,” he says. 

Properly pointer: What are concessions?

Concessions (in real estate) are discounts that the buyer asks of the seller to help reduce the price of the sale. For example, if a buyer agrees to pay $1 million for a home conditional on inspection, and the inspection identifies that the roof needs to be replaced, the buyer may ask the seller to reduce the sale price by $10,000 to pay for this new expense. The seller can accept, counter, or reject this offer.

“In more consistently balanced markets like Calgary, concessions are part of the home selling process. Buyers typically request them for every minor defect that an inspection may reveal, like a doorknob needing to be replaced with a hardware cost of $20,” says Dales.

In Toronto and Vancouver, concessions were extremely rare for many years. The market was so competitive that buyers didn’t want to do anything that would risk turning off a seller and losing out on a house. Now, sellers are frequently accepting some level of concession.

1. Buying is cheaper than renting in many markets

First, the bad news: There are fewer and fewer properties available in the current market. And Dales expects that trend will only continue. 

“With high inflation causing building costs to increase and a falling market dropping home values, many builders have halted their residential developments which will cause further housing shortages in the future,” he says.

While prospective homeowners still dream of buying a home, there are many who simply can’t afford to right now — with the latest interest rate hike compounding that reality. Even Canadians who can afford this big investment are thinking twice because they fear the market will drop even more, and they don’t want to acquire a depreciating asset. 

However, the alternative — renting — isn’t looking great either. 

“We’ve seen rental rates skyrocket. The average rent for a condo in the City of Toronto bottomed out in February 2021 at $2,045 a month. Today, that figure is $2,882. That’s a 41% increase,” says Dales. 

“Looking at year-over-year figures, rents for condos in the City of Toronto are up nearly 19%. If rents continue to move in this direction, the rent vs. own math will shift dramatically, which may increase demand.”

A recent report showed that it was cheaper to own than rent in Mississauga and Oshawa. In Toronto, there was only a 9% premium for ownership as opposed to renting.

2. Now more than ever, buyers need to do their “home” work

Properly’s General Manager of Mortgages, Muhammad Rashid, confirms that the anticipation — and now the increase — of the interest rate leaves a lot of uncertainty in the market. 

“No one expected the Bank of Canada to raise rates as aggressively as they did. Now we’re wondering how long this cycle will continue, until we either get a break from the hikes or start to see rates declining again,” he said.

“It’s becoming increasingly difficult to manage mortgage payments, specifically for customers on an adjustable rate. Fixed-rate customers who are coming up for renewal might be shocked since renewal rates are substantially higher than what they were previously locked in at.”

That’s why, in a market like this, it’s crucial that existing homeowners who are looking to upgrade find the right financing solution. How? Do your “home” work. 

“Knowing the difference between a fixed, variable, and adjustable rate mortgage can help customers feel confident that they’re making the right choice in a volatile market,” said Rashid.

3. Interest rate hikes are causing sellers to be more strategic, buyers to blaze forward

In this market, buyers, sellers, and investors have their hazard lights on, according to Senior real estate agent and expert, Nat Grillo

“We’re seeing a lot of hesitation as buyers and sellers try to get their timing right and guess the bottom of the market. There are concerns about a recession, which forces buyers to consider the financial security of their income. The interest rate hike is causing sellers to pause.”

He says buyers are starting to assert themselves more in the negotiation process. “After being ‘bullied’ for a few years, they sense that the tables have turned. I have seen two instances where buyers liked a property but instead decided to let it sit a bit on the market so the seller will be less confident when they put in an offer. If you tried this before, chances were another buyer would swoop in while you waited.” 

Sellers, too, are taking the time to weigh their options. “Many have decided to wait to make a move until the spring, believing that this is a temporary lull in the market which will improve by then. There are also some who feel things might get worse, but they’re the minority of my clients,” said Grillo. 

Sellers who are putting their homes on the market now are going all in, ensuring their property is putting its best face forward with a fully staged presentation. They’re also taking care of the price at the market or slightly below.

Grillo’s professional advice to homeowners in the current economic climate is to move forward with selling if that’s what they want to do. “If you don’t get traction on your listing, or you don’t get a price that’s acceptable to you, you can try again in the spring.”

What’s your next move?

If you’re thinking about buying, selling, or investing and want personalized advice on how to navigate the current market, Properly’s housing experts are here for you. 

Learn what your current home is worth and schedule a call with our team to help you navigate interest rates increases, mortgage options, and what will work best for your needs.

DISCLAIMER: This article is provided for informational purposes only. It is not an exhaustive review of this topic. The content is not financial or investment advice. No professional relationship of any kind is formed between you and Properly, Properly Brokerage, or Properly Homes. While we have obtained or compiled this information from sources we believe to be reliable, we cannot and do not guarantee its accuracy. We recommend that you consult a trusted professional before taking any action related to this information. Properly is a tech-enabled real estate brokerage that is transforming the home buying and selling experience with AI-powered home valuations and a modern streamlined service. We recommend that you compare and contrast your options, read the fine print, and conduct detailed research into any real estate, loan, and/or investment provider before using their services.
Properly is a Canadian tech-enabled real estate brokerage transforming the home buying and selling experience as the only service in Canada that helps homeowners to buy before they sell.