Over the last couple of months, interest rates have been going up. Are they set to go even higher? I believe that the rates will continue to increase. It is hard to argue that rates will go lower with inflation ripping away—and let us be real, inflation and interest rates are the hottest headline these days. The Feds like to use interest rates to cool things down or to try to disrupt the consumer’s psychology. Essentially, the Feds try to make a purchase unaffordable, or they try to make the consumer think twice while making a large purchase. A government financial clam shell game usually does not end well. When the Feds intervene in a complex financial system, it often causes unintended consequences; consequences we may not fully understand for years to come.
Back in the 1980s, there were some substantial consequences as a result of inflation and crazy high interest rates. I was not a realtor back in the 80s; however, when I began selling real estate in 1992, my associates shared some mind-blowing stories of the market throughout the 80s. Stories of prices that were increasing literally weekly, inflation that went up weekly, and interest rates that were hard to fathom. Hard to believe, but a five-year mortgage rate in 1981 peaked at over 21%! I was too young to understand, but I remember hearing stories of people becoming wealthy millionaires one day, and then later walking away from their homes and dropping the keys off at the bank because they could not make the payments.
How are jet setters affecting the real estate market?
Are we in that cycle of craziness again? Clearly, there is uncertainty in the world and Canada with ballooning inflation, energy crisis, supply shortage and chain issues, war, and massive government debt.
Speed kills! Think back over the last two years and reflect on the speed of the decisions countries around the world were making in regards to lock-downs, health mandates, stimulus offerings, and even your own personal decisions. Do not get me wrong, speed is an asset in the right hands, but it can also be a killer. Speed is an asset when it is in the hands of someone, or a body, that works in the realm of speed. However, have you ever seen the government succeed when they are working at speed? They are not built for speed; therefore, speed definitely kills at a government level.
Let me go back and answer my previous question of, “Are we in that cycle of craziness again?” Yes and no… Let me explain why. Yes, because we have seen some tremendous increases in real estate prices across the globe. Yes, because we are witnessing inflation we have not seen since the 80s around the world. Yes, because the country is experiencing obstacles they have never seen before.
On the other hand, no, because the globe weathered a financial storm in 2008-2009 and they were more prepared for this crisis. No, because interest rates are extremely low in comparison to what they were in the 80s. No, because the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) are behind the majority of global trade and they control the international financial system; therefore, they will not or cannot afford to push rates sky-high. Moreover, no, because the real estate supply of homes is still extremely very low throughout the major Canadian markets.
What is the jealousy tax and how does it affect you?
Speed kills. Be prepared and make sure you are ready for a few bumps along the way. If you are, you will be fine. Rates are going to go up, that is a given; however, as fast as they go up, there is a possibility they could also come down over the next 6-12 months. The lesson I want to leave you with is this: governments should stop screwing around with the economy. The economy is too complex. Decisions regarding the economy should be left to capitalism or free enterprise to work it out.
A quick look at the monthly stats gives confirmation that the market has pulled back from its highs of volume of sales and price. Many of the property types and markets are moving towards a good to soft sellers’ market. The market is still an excellent market to be a seller; they just need to set their expectations on receiving a single offer versus multiple offers. Buyers finally have some say in the market place. Opportunities for a good buy are back with more inventory and sellers that are now open to negotiating and subject offers.
Interest rates will continue to be a headline for the months to come. This in turn will bring inventory levels higher, prices will plateau or slowly adjust down, and buyers will finally have a seat in the front of the bus rather than being a passenger in the back of the bus. Whether you are a seller or buyer enjoy the ride and remember speed can kill!
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Fraser Valley STR Stats
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Vancouver STR Stats
STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales
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