According to experts and pundits, Canada’s economy is heading for recession. Depending on our position in the market, if you’re an aspiring buyer, if you’ve owned your property for years or if you recently purchased a property, if you’re anticipating selling a property, and so on, a recession will impact you in a different way.
As governments and banking officials attempt to curb inflation and pull out of the recession they will increase interest rates (they do this in an effort to slow spending that leads to increasing prices) Increasing interest rates will reduce the consumer buying power which means prospective buyers of real estate will have reduced budgets. Buyers will simply not be able to afford to spend as much on a house as they might have when interest rates were low. This will, and we’re seeing this already, result in lowering real estate prices.
So long as the coming recession is, relatively speaking, mild, and the economy enters recovery mode reasonably soon, following a phase of decreasing prices, we should see in the real estate market is a phase of plateauing prices. Plateauing prices would be a
refreshing change from what we’ve seen over the past two years and this is good news for prospective buyers. That is, for those prospective buyers whose budgets aren’t completely undermined by interest rate hikes. When prices are, for all intents and purposes, flat, it is far easier for prospective buyers to anticipate the selling price of homes and can avoid overpaying.
What we are also likely to see is some teeter tottering when it comes to interest rates. That is, some ups and downs, some increases and decreases in interest rates as banking officials attempt to pull out of recession while, at the same time, avoiding
worsening inflation. What does this mean in the context of the real estate market? Well, if you’re a property owner with a variable rate mortgage, you should expect your monthly payments to increase in order to cover the additional interest that accrues from
month to month. With this in mind, those that hold a variable rate mortgage would be well advised to consult with their mortgage professional about how volatile interest rates will impact their mortgage.
Buyers and sellers should also anticipate a longer sales cycle. The increased interest rates will inevitably result in fewer active buyers in the market which will reduce competition. Properties will be a lot less likely to sell in days as opposed to weeks and,
consequently, sellers should anticipate more offers conditional upon the sale of the buyer’s property. During recessionary times we’re a lot more likely to see the market fluctuate between being a balanced and a buyer’s market. Recession is not going to cure the persistent shortage of housing here in Canada so there will still be ample demand to keep the real estate market active but, recession-related pressures are bound to temper demand for at least the medium term.
– Darryl Murphy