Value of Homes Due To 0.75% Prime Rate Increase

Sep 26, 2022

Value of Homes

Value of Homes:

It has likely come to your attention that the Bank of Canada increased the Prime Rate 0.75% from 2.5% to 3.25% last week. Our most recent blog that we published on September 9th discussed the pros and cons of the prime rate increase as well as discussed what rate option is best for you. I recommend checking it out to have a better understanding of how this prime rate increase may affect you.

In this blog we are diving more into the topic of how this increase will affect the value of homes and the effect it will have if you were to sell and/or purchase a property in the near future.

Starting in April (2nd fiscal quarter), the value of properties started to decline. From April to June, the value of residential real estate held by households fell by $419 billion, while financial assets dropped by $531 billion according to Statistics Canada. This means that household net worth fell by 6.1%, which is the largest drop on record. 

This being said, households remain much better off than they did before the pandemic, with a net worth of $2.9 trillion higher than at the end of 2019. The value of residential real estate held by households is up $2.3 trillion over that time. 

What is offsetting the prices of homes? Companies did much better in the 2nd quarter, thanks to the rising prices for commodities that are offsetting the drop in household wealth. The net worth of the corporate sector jumped by $812 billion.

We want you to know that the drop in housing prices is likely to continue into 2023. In theory it is important to understand that just because the value of your home drops does not mean that you are losing money. It is all about the time of sale, and if you sell at the same time that you buy another home within the same market, then you are likely to average out the loss of your sale with the lower purchase of your new place.

It is all relative to the market you purchase in. If you are located in Langley, and you sell your current Langley property in favour of another property in Langley, then the discounted value that someone bought your place at will likely be the same discounted value for the new place that you purchase. If you live in Langley and move to Toronto, then the likely discounted price is not going to be the same, and that is why it is best to do research ahead of time.

We are anticipating more decreases in sale prices this year and into 2023, with the possibility of going into 2024 and beyond. Economists believe that the worldwide downswing in prices that we are seeing is only getting started and that a correction to closer to pre-pandemic levels is likely. When we say closer to, we do not mean back to where they were, we still anticipate home prices to stay at a decent percentage over 2019 levels (10-15%). For reference, home prices went up 35-45% in some regions from the beginning of 2020 to the beginning of 2022.

Moving to a new place can feel daunting, especially if you are moving geographic boundaries during a downtrend in the housing economy. If you have any questions about where the market is in a particular geographical area, please do not hesitate to reach out to us, we would be more than happy to help you and make sure that you understand the value addition or loss you could receive on your geographic move. 

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