When COVID hit, the Bank of Canada dropped Prime Rate very quickly and started a fast and furious process of Quantitative Easing. This was to ensure that banks and other financial institutions have access to inexpensive funds to ensure a strong, secure economy. Back in 2008, during the US Sub-Prime and the Global Financial Crisis the Bank of Canada was slow to assist in ensuring financial institutions had access to funds. They kept the Prime Rate the same at first and actually restricted lender access to government backed insurance funds for their mortgage back securities.
It was quickly apparent that the Bank of Canada did not want to make the same mistake again, especially as the federal government was creating programs for home owners to skip mortgage payments, and ensure people had incomes when we were all asked to stay home.
All good things must come to an end, and what is coming to an end is Quantitative Easing. We are now moving into a tightening phase. Rates will increase, less money will be available to guarantee mortgage backed securities and the government will be hesitant to do anything to push the values of housing any hire than it already is. This will undoubtedly have an affect on the market.
Does that mean the market it going to crash?
The market is not going to crash. The sky is not falling. We are moving back into a balanced market. A market where there is 60-90 days of inventory, versus next to no inventory. Buyers will be able to get inspections, sellers will be able to find a new home and put subject to sale of their existing home. People will be able to relax a little bit.
Are prices going to drop?
On Vancouver Island, I would suggest not likely.
Vancouver Island is arguably the best place to live in Canada. Even though it has rained for the past six months straight, it is still a very desirable place to live for a lot of people. With limited new construction, prices on the island are going to remain stable.
What is going to happen to rates?
Desjardin Bank is expecting POSTED rates to increase to 7% by this winter or next spring. Fixed rates offered on mortgages are always discounted by 1%-2% off of posted rates. Prime rate is also expected to go up another 0.50% -1%. So yes, rates are going to go up.
What does that mean to you?
If you are a Buyer, and need a mortgage, it means that you will qualify for less money. If I was looking to buy in this market I would be joined at the hip with my mortgage broker. I would ensure that my mortgage broker is up to date with my most recent paystub, tax returns and anything else they require. I would ask that they keep my rate hold current and updated.
If you are a Seller in this market, you should price properly. Not just some random price you think you should get because everyone else is making tons of money. Perception and reality are rarely the same. Overpriced houses don’t sell. Well priced houses sell. Buyers are wise, educated and informed about the market. Price your home based on facts like recent sales data and ensure that your Realtor has a stellar marketing plan. Just throwing a house on the MLS and expecting it to sell on its own is not in your best interest. You best interest is to give the house maximum exposure, putting its best foot forward, at a great price!