Real Estate Talk:
Interest rate ups and downs

It will be a while before anyone can accurately count on stable rates and inflation

By Joseph Marovitch

March 28, 2024

We hear various economists, bank directors and heads of real estate agencies giving opinions on the direction of interest rates and, therefore, the direction of property values.

An informed opinion would be based on both indicators, such as gross domestic product, government regulations, fiscal policy, current home sales, and past results over the long term, such as the Bank of Canada interest rate and inflation remaining the same or lower over many months.

However, other factors are not in our control, such as pandemics, wars, politics, and terrorism, that affect inflation and interest rates. The world has had many years of relative peace since World War Two. These years have allowed governments in commonwealth countries such as Canada, the U.S., and the UK to have stable governments and markets with predictable inflation and rates until the current era in which we have divisive governments, war, and the pandemic.

Today it is very difficult to know where the economy, interest rates and inflation will go.

These issues, taking place in other countries and our own, do not allow for stability in neighbouring countries. Therefore, countries that are affected by others have little control over inflation and interest rates. Today it is difficult to know where the economy, interest rates and inflation will go. We can only know what is in the present. As far as the future is concerned, no one can know with certainty.

One of the most important factors that determine property values is interest rates. Interest rates work inversely to property value. If rates rise, property values lower since high rates make borrowing more expensive. If borrowing is expensive, fewer people want to purchase property. Therefore, sellers lower their prices to entice buyers to buy with lower expenses.

If interest rates decrease, then property values rise since borrowing is less expensive and buyers have more money to purchase with.

It will be a while before anyone can accurately count on stable rates and inflation. We would require years of global stability, not war, sickness, divisive politics and definitely not a tyrant threatening nuclear war every other day.

‘We can only know what is in the present. As far as the future is concerned, no one can know with certainty.’

For the present, buyers and sellers can make decisions based on current conditions or bet on the future when the world gets its act together.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.

Next article: Is the summer market a good time to sell?

State of the market

Bank of Canada interest rate: 5 %
Canadian prime rate: 7.2%
Canada inflation today: 2.86 %

Current 5-year rates at 5 main banks
BMO: 5.14% – TD: 4.5% – RBC: 5.59% – CIBC: 5.69% – Scotia Bank: 6.79%

According to a recent article by Noella Ovid in the Financial Post, dated March 24, many buyers will not purchase so quickly due to high-interest rates. However, recently many buyers have run to buy homes due to banks lowering their rates in anticipation of the Federal Bank reducing the 5% rate.

‘His [Robert Hogue’s] expectation is market values will slowly rise over a long period. Market values may rise slowly or even fast if there are no more surprises in the global community.’

According to Robert Hogue, assistant chief economist at RBC, rates must be reduced substantially for the market to pick up. Until then, sellers will not list their homes so quickly. His expectation is market values will slowly rise over a long period. Market values may rise slowly or even fast if there are no more surprises in the global community.

Have a great week.

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