Sales Volumes and Interest Rates
In Canada, the mortgage debt boom that we have seen increasing since early 2020 is slowing but it still remains historically elevated. In July, the balance of outstanding residential mortgage credit hit $2.04 trillion, which is 9.3% or $174.7 billion larger than it was a year ago. It is true that growth is starting to slow, but at the moment it is only gradually happening, with the annual growth at a level that has rarely been seen outside of Canada’s frothiest market cycles.
The high interest rates are starting to throttle growth, as they shrink borrowing credit capacity. July was a signal that the downturn in the housing market is starting. In February, a month not normally known for high sales volumes in this industry, had a comparable sales volume to July, which is normally one of the highest sales volumes months of the year. Not only that, but July had the slowest annual growth since May 2021.
What Does This Mean?
Well, even though July still brought up the balance of outstanding residential mortgage credit hit to $2.04 trillion, it signals that the rising rates are starting to pump the brakes on the market. In theory, it is anticipated that we will not see the actual slowdown till later this year or even the start of 2023. Once the interest rates and inflation stabilize is when we will have a more clear picture of the impact that rising rates will have on the housing market.
What Has This Meant?
Since 2020, housing prices have gone up in high percentages across the country, with some regions going as far as above 40% of the value of the home in the beginning of 2020. Due to this, a recently released census data showed that roommates are the fastest growing type of household in Canada.
For homeowners, renting out your basement suite or extra room allows you to create extra profit from your home, and could cushion the loss of the value of your home when the market takes a downturn. This said, it is important to understand that if you are buying a home in the same region, then the purchase and sale of your home will be relative in the downturn.
For renters, it has been a hard time to enter the market and renting has been the only solution. On the positive, we are anticipating a decade of high infrastructure growth leading to the creation of more homes and for the value of homes to go down and stabilize within the next few years. This can be good news as it can be hard to watch prices go up and up and up when you are just in school or beginning your career.
What Can You Do?
It is important to always understand that due to our free market, you can never with 100% accuracy predict what is going to happen. It is best to reach out to the experts to get the most updated and beneficial answers.
The next few months and years in the housing bubble will be interesting as we begin to see how the prime rates will affect housing prices, where the motivation in individuals will be for purchasing homes and investing in property, how government programs will amp up new housing initiatives, and what kind of renter support systems we will be seeing in the near future.
We always keep up to date with our blogs, but we always love to chat! Please give us a call anytime and we would love to help answer some of your questions, get you set up with a new mortgage, or help you solidify your current mortgage.
Lastly, we will be posting another blog shortly that will have tips on things that may help your anxieties towards a potential upcoming recession and the increase in everyday items that we are already experiencing.