Interest rates

LACKIE: Housing market taking a beating thanks to rising interest rates

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Market statistics for July were released last week and it should come as no surprise that they are quite dire.

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Despite their best efforts, even real estate agents on TikTok are struggling to find anything even remotely hopeful to cling to.

For the fourth month in a row, the Toronto real estate market has seen both sales and average selling prices decline. Away from February’s average sale price of $1,334,000, July fell 19% to $1,074,754, with sales down nearly half.

It’s hard to run anything on it.

Although prices overall are still up 1.2% from this month last year, for the first time since the start of the fall, the average sale price of a detached home in Toronto is down year over year.

Lest there’s any confusion about what’s behind this seemingly abrupt turn, it’s not a summertime slowdown or a return to pre-COVID market rhythms — it’s interest rates.

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And with all signs pointing to the Bank of Canada continuing its rate hikes in an effort to rein in runaway inflation, we can expect the same to happen in the market in the months ahead.

Despite all the talk of supply and demand, shifting buyer priorities, population growth and immigration goals, it turns out that what should have been the most obvious element of all was also the more impactful.

Cheap money and rising home values ​​allowed speculative activity and investment, and offered homebuyers a deeper pot from which to spend more than they otherwise could. do it otherwise. The steady rise in prices has only served as proof that home ownership isn’t about owning a home for your family, it’s also a smart investment and a vehicle for wealth creation.

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Of course, this only works if nothing stands in the way of the meteoric rise. The increased cost of owning a depreciating asset reverses the value proposition.

And now that the money is no longer free, one has to wonder what comes next.

Some say the party is over and we need to undergo a correction to 90s levels, while others insist we just need to give the market time to adjust to the new cost normal. loan. Rates are still in line with historical levels, after all, they just aren’t at the lows we’ve taken advantage of.

Meanwhile, calls for help are already beginning. Predictions abound that the government will step in and remove the stress test, extend amortization periods or offer payment holidays. Forgetting of course that the government we would be asking to bail us out is the same one that used every tool available to support our housing market during the pandemic, allowing this bubble to form in the first place.

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TRREB wasted no time in intervening: “With significant increases in lending rates over a short period, there has been a shift in consumer sentiment, not market fundamentals. The federal government has a responsibility not only to maintain confidence in the financial system, but also to instill confidence in homeowners that they will be able to stay in their homes despite rising mortgage costs.

I don’t know how anyone could honestly believe market fundamentals are unchanged as if access to cheap capital hadn’t been the most fundamental of market fundamentals. And now that we’ve well and truly hit the wall of affordability as a recession looms and unemployment is on the rise, to suggest that things will be better once consumer sentiment improves is quite makes a stand.

The market will certainly pick up in the fall – life goes on, rhythms return, circumstances change, humans adapt. But anyone who thinks we’ve hit rock bottom probably also has some magic beans to sell you.

@brynnlackie

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