As we crawl towards the prospect of a blazing hot summer and a much needed respite from a rather hectic first half of 2022, the housing market has cooled like an air conditioner making up for lost time. As home prices continue to drop, interest rates continue to increase creating an understandable panic amongst the general population of homebuyers. Those caught in the middle of having purchased a home before selling their primary residence are anxious. Similarly, those who have leveraged their primary residence to invest in rental income earning properties are seeing their cash flow projections diminish, especially if such investments were chained to a variable mortgage transformer. Each and every day issues a new percentage of income loss to the average Canadian household, while inflation seems to have usurped Covid as the most dangerous word on the planet. However, there may be hope on that blazing horizon, despite all of the uncanny stormy weather experienced in Canada thus far, in 2022.
Let’s start with the inflation rate, and perhaps, we can begin to quell some of the panic. In Canada, comparative to other countries, the inflation rate has definitely risen, but finds itself near the bottom, globally, at 3.8%. The U.S., for example, is currently mired at 8%. Inflation occurs as a result of little supply and over demand for that supply, which tends to fuel price bloating. Factor in a Russia-Ukraine war, which has hampered fuel supply, and it becomes feasible that prices across the board, from real estate to groceries, are predictably rising. So what will stop the bleeding? Investing more money into the economy, which seems to be on the table at a federal level, is bound to perform very minimal impact, considering that Canadians are more cash heavy but also personal debt heavy. Increasing supply of products which are currently most in demand, is a better long term solution, however, the inflation rate is in forest fire mode now, and needs to be controlled. The Bank of Canada has stepped in with their own solution, but the increased interest rates have only served to slow the inflation quadrant of real estate, while isolating those committed to escalating variable mortgage rates into a panic. In order to tame inflation, supply needs to increase and red tape to create more housing alternatives needs to be cut and reformed. By increasing supply across the board, prices will stabilize and the percentages of investment to lending potential in an economy that was otherwise healthy, can find a balance.
Many experts have predicted a temporary lull, a transitional period vacuum from the pandemic, as a need for adjustment, while those seeking click bait are forecasting a gloom and doom scenario. Holding back on investing in real estate, or economic disengagement, may be a worse case scenario than those pessimists forecast. Real estate, as well as other investments, will rebound as history suggests they will, but in the meantime, smarter investments instead of impulsive ones, will surely continue to reap benefits, despite what is now an average mortgage interest rate when compared to average mortgage rates over the past 30 years.