Surprise, surprise, the Bank of Canada announced another interest rate hike at their latest policy meeting on October 26. We were expecting it. It was like ripping off a band-aid, but you know what? It wasn’t as bad as people thought! 

Many traders were betting on a 75-basis point increase but all we ended up getting was a 50-basis point increase! Still big? Yes. But not as big as we thought it would be! 

The policy rate is now at 3.75%, which yes, is the highest it has been in a while, but in my opinion, this latest increase won’t have the disastrous impact that the news will likely have you thinking when they start publishing their think-pieces. 

Here’s why. 

Before I dig into the details, are you subscribed to my YouTube channel? Subscribe here and be the first to know when I put out a new video! 

Why the Interest Rate Increase Won’t Make the Market Crash

The general consensus among experts is that increasing the interest rates won’t cause a 2008-style housing market bubble to burst. And the reason is pretty simple: it can only go so high. 

The main difference between today’s interest rate increases and those we saw in the 1980s is a few things: first, we don’t have the same blue eyeshadow, legwarmers, and crimped hair, but also, the average Canadian is carrying a lot more household debt. 

Even a 0.25% increase today has about 5 times more impact than it would in the 80s because of our high debt ratios–and mortgages, in general account for the largest portion of that debt. 

For this reason, the Bank of Canada will have a ton of pressure on its back to keep rates low. And while there is talk of another rate hike coming before the end of the year, many economists agree that the tightening phase is almost over and we should see some stability in 2023. 

We aren’t psychics, so we can’t predict the future with absolute certainty. But here are a few posts to help you understand what’s going on in the market and where things might head:

• Demystifying Toronto Regional Real Estate Board Stats
• Crunching the Numbers: Should You Rent or Buy in Canada?
• Tick-Tock, Should You Time the Market?

3 Reasons Why Interest Rate Hikes Won’t Result in a Massive Price Correction 

If you’ve been watching the news and reading the TRREB stats, you likely know that prices tend to soften a bit with every interest rate increase, but TBH, there is very little chance that these rate increases are going to result in a major price correction in Toronto. Here’s why: 

1. Lack of Inventory 

We’ve been saying it for a while now, but Toronto is a super low inventory market. There are simply not enough homes to satisfy the needs of buyers in the market. Even now as we enter a more balanced, or even, buyer’s market, there is still little-to-no inventory. In fact, TRREB’s latest numbers for September showed the lowest number of new listings coming to the market since 2002. 

If there isn’t a dramatic increase in inventory, there’s no risk for a housing bubble, and therefore, no bubble to burst. No one is panicking and flooding the market with new listings. Most sellers are holding firm. 

Sorry to burst your bubble, but here’s another blog about why a housing market bubble is not coming our way. Read more here.

2. Blame the Millennials 

They’re an easy target, but Millennials and Gen Z account for almost 50% of the population in Canada. A recent study from the National Association of Realtors® (NAR) said that 30% of all home purchases are coming from first-time buyers, which happen to be the same avocado-toast-loving Millennials and Gen Z people. You might think that this population would have a harder time entering the housing market and qualifying for mortgages with higher rates, and yes, you’d be right–sort of. 

Millennials and Gen Z might have a hard time buying a home, but you know who doesn’t? Their parents. More parents are using the ton of built-up equity they have in their homes to help their grown children break into the market. Thanks, mom and dad! 

3. People Don’t Have to Sell if They Don’t Want To

Canada is not in a dire situation of subprime mortgage meltdowns. We’ve learned from the mistakes of others and implemented super strict lending criteria. Canada has some of the most intense regulations for obtaining a mortgage in the world! The chances that a homeowner could default on their mortgage are actually quite low, and even anyone who purchased a home last year when interest rates were low, would have passed the stress test and would be locked into that low rate for at least 3-5 years, before selling. And if you’ve read some of our other blogs, you’d know that 3-5 years is actually the best amount of time to pass before selling. Read why here. 

The Current Decreases are Just a Mirage 

The pricing softening we are currently experiencing is not a true decline in price. It’s just coming down off the peak of the market. You know, that crazy housing market we were in for the past 2 years? What we’re seeing right now is normal, and although I can’t make any late-night-TV-tarot-card-reader predictions, I can almost guarantee that the way things are going now will not result in a market crash.

Are you thinking about making a real estate move in Toronto in the near future? You’ve got questions and I’ve got answers! Call or text me at 647-973-8392. I’m always happy to chat!