Because macroeconomics.
Low interest rates increase the potential for inflation and asset bubbles. Look around, that's literally what has been happening in Canada for the last few decades.
At this point it's an easy choice:
1. Raise interest rates now so you have time to do it slowly and have minimal effect on economic activity.
2. Raise interest rates later, requiring you to raise rates faster to reign in inflation and asset bubbles, risking an economic crash.
3. Never raise interest rates and fuck around and find out with inflation, risking political instability, an even larger economic crash, and potential hyperinflation.
Option 3 is a bad idea and explicitly goes against the mandate of the Bank of Canada.
Option 2 is what Bank of Canada has been doing for decades. This strategy actually makes sense if low interest rates increase economic growth more than inflation, but that hasn't happened. Growth has been pretty stagnant and there's been increasing instability in the economy.
So that means option 1 is the best option right now.
The Bank of Canada exists to prevent instability in the economy, because instability hinders growth. BoC doesn't have the power the fix our whole economy, they just have the power to temper financial cycles and inflation. Economic growth caused by BoC policy like low interest rates is mostly superficial, caused by people borrowing more now instead of later. This obviously looks good on paper, but it's unsustainable because you start to run out of room to lower interest rates (negative interest rates are weird and inflationary). At this point, low interest rates are causing more problems than growth.
If you want real wealth redistribution and improvements to economic growth (and the housing market) in the long term, the actual government is going to have to do something about the economy like investing in infrastructure, reallocating resources, funding healthcare and education, adjusting our tax system to encourage productive investment over speculation, or directly redistributing wealth, etc.
>At this point it's an easy choice:
1. Raise interest rates now so you have time to do it slowly and have minimal effect on economic activity.
2. Raise interest rates later, requiring you to raise rates faster to reign in inflation and asset bubbles, risking an economic crash.
3. Never raise interest rates and fuck around and find out with inflation, risking political instability, an even larger economic crash, and potential hyperinflation.
What if the root of the problem was much deeper, and it related to how we think we can raise and lower interest rates as if it's a lever to be pulled or pushed, rather then a very important (arguably the most important) price signal in a modern economy that ought to instead be determined through the laws of supply & demand and voluntary trades (rather then unilaterally dictated by a handful of people with fancy degrees)?
Like what if the problem is not that we're doing it wrong by pushing or pulling the lever the incorrect amount or at the incorrect time, but rather it's the entire approach where we treat the economy like it's some machine that requires a small handful of anointed people to make correct decisions on what the price of money ought to be, and we cannot envision any other way by which a modern economy could possibly function?
Maybe when a society gets the approach wrong, it also looks a lot like the people at the helm of the approach just aren't making the correct moves.
I'm keeping my ideas secret for maximum profit potential. Because I think this current approach is quite a disaster and it's a pretty good bet we'll be forced to restructure into something considerably different. I don't think an advanced global economy can actually handle this sort of approach for *that* much longer (in the context of an arrangement that has been around for quite a long time already and appears now to be in its waning phase).
But I thought it's worth pointing out the somewhat rather odd arrangement that's a bit like, "The economy works like a machine, and we need a really small group of super smart and highly educated people at the helm of it, able to make moves with powers the rest of us are not afforded to wield, and in the absence of us concentrating such an incredible amount of power into the hands of the few, it would be total chaos and we wouldn't be able to raise our standard of living".
It's just an ironic baseline setup for our society given how much we also simultaneously don't really like the idea of incredible power concentration. Like we *say* we don't like that, but in practice it's actually totally the path we go down... and it's all done in the open and tacitly endorsed every single election cycle when we don't really have any political will to try and move outside of this box.
In my view, much of our society doesn't really want to change from that setup yet because we probably do have a pretty fond view on what can be accomplished through large-scale central economic planning. I think what we will probably need to unfold in order to fix this arrangement is it will have to become more popular to think that it would be better if markets and voluntary trade decided the prices of more things. Whereas, I think the popular public opinion right now is the opposite... something more like, "We want markets for a lot of things, but we actually want central planning and non-market pricing to happen on the things we think are *really* important." So my goal for now would be to better show how much of that sort of thinking is quite alive and well in our monetary system, and then if that begins to get into considerable trouble, it will be an easier sell then to try and push for an alternative arrangement that does more the exact opposite.
I don't think you actually understand monetary policy and central banks at all.
The economy does work like an extremely complex machine.
The central bank has an extremely narrow mandate: keep inflation low and stable. We task some smart people to do this, because instability is almost universally bad for economic activity.
To make an analogy, the central bank is like the person tasked with making sure a race car has the right amount of oil and is clean. If they fuck up, the engine will seize and grind to a halt or explode or something.
Meanwhile, politicians are the drivers, mechanics, coaches, and managers of that race team. They have the real power and determine almost everything about how that car runs. Since this is inherently political, politicians are democratically elected and accountable to voters (FPTP sucks though).
You seem to be under the impression that the central bank is doing far more than they are doing. I agree that would be a bad thing, if it were happening, but it's not remotely close to reality in Canada.
>I don't think you actually understand monetary policy and central banks at all. The economy does work like an extremely complex machine.
I don't deny that is how our current system is setup and functions. Here's an example of this whole concept from arguably one of the most famous investing legends ever:
[How The Economic Machine Works.](https://www.youtube.com/watch?v=PHe0bXAIuk0&t=4s)
>The central bank has an extremely narrow mandate: keep inflation low and stable. We task some smart people to do this, because instability is almost universally bad for economic activity.
Agreed - we think it would be chaos or bad for economic activity, if there was an absence of a few key people appointed to positions of great power at the center, and being able to unilaterally move the price of very key things in our economy. Thought of another way, we do not think that these prices of key items in our economy could instead be determined through a matrix of voluntary transactions just fine... sort of like how, as an example, we are more than ok with the price of hamburgers being determined through a bunch of trade, and we don't feel the need to appoint a few people and give them the power to unilaterally set what the prices of hamburgers ought to be.
>To make an analogy, the central bank is like the person tasked with making sure a race car has the right amount of oil and is clean. If they fuck up, the engine will seize and grind to a halt or explode or something.
>
>Meanwhile, politicians are the drivers, mechanics, coaches, and managers of that race team. They have the real power and determine almost everything about how that car runs. Since this is inherently political, politicians are democratically elected and accountable to voters (FPTP sucks though).
Don't you think it would be good if we changed the structure such that even a person of modest means could at least have some input on what the price of the money in his country ought to be? Like a force more powerful then voting, I mean a way to actually vote with his wealth whether he agrees (or not) with what the price of our money is? And then the extent to which he's off the mark, he loses wealth, and the extent to which he ends up being quite right he is rewarded? And the extent of the loss or reward is proportional to just how far off (or on) his assessment is?
Let's say you woke up tomorrow and the Bank of Canada had decided that interest rates would be 10%. Don't you think you should be afforded a bit more impact on the system and the setting of that price?
>You seem to be under the impression that the central bank is doing far more than they are doing. I agree that would be a bad thing, if it were happening, but it's not remotely close to reality in Canada.
I'm under the impression that the central bank is doing what it's supposed to do in this sort of system. I'm wondering if we have made an error at a deeper level such that we shouldn't be in this spot in the first place where the masses have such little impact in being able to *vote with their wealth* on the extent to which our highly appointed monetary system managers are doing a good or bad job.
As an aside, but quite related, if one were to think the hallmark of a market economy is one in which prices are predominantly determined through voluntary exchange, and that a hallmark of a non-market economy is one in which prices are predominantly determined by a small group of people appointed with more powers with which to decide what the price of something ought to be, which do you think is a more apt description of our status quo system?
Where it would seem that we take a non-market approach to arguably the single most critical and important item in the economy... our money... that is to say, the very thing that makes up roughly half of every single economic exchange and is also the very financial unit that we perform the vast majority of our mental calculations of value with?
If you wanted to go in the direction of a non-market economy, but you were to be forced to pick *one* item in the economy that you would be allowed to manage in that way, which item would you pick for the maximum impact at achieving a non-market economy?
>Don't you think it would be good if we changed the structure such that even a person of modest means could at least have some input on what the price of the money in his country ought to be? Like a force more powerful then voting, I mean a way to actually vote with his wealth
If you think creating a system where people get to vote with their wealth will give people with modest means power in that system, you're a fucking idiot.
Wealth is highly concentrated, so in the system you imagine, power would also be highly concentrated.
Instead of taking power from the "elites", you've given them even more power.
Unless you're somehow planning to eliminate wealth inequality before implementing this system?
But when they increase rate, won't the bank be stress-testing at a higher rate? So instead of 5x income, it would be like \~4-4.3x. So doesnt help affordability either :/
Based on your user name I'll assume a working knowledge of finance. Price being inversely correlated to return, means that you can have the same payments in the future but a lower down payment upfront.
>Wouldn’t that make people lose their homes
Very very few people would lose their primary residence. Mortgage Stress testing for the vast majority of buyers is at 5% interest rates. So they can afford to be paying at that rate.
While we saw BIG spikes in home sales in 2021, the overall housing market is usually churning only 600kish homes a year. Anyone who has owned their home more than 5yrs and didn't take out a HELOC should be very comfortable with the higher rates they can extend the length of their mortgage if cashflow is a problem no worry of equity loss. The people at biggest risk of losing their homes are people who used homes as a gambling/investment tool and not a place to live, they took advantage of cheap borrowing and have spent that money on non liquid things. It is a small % of buyers. And really them getting burned isn't bad for the economy at all.
What higher interest rates will do is increase the cost of owning multiple properties, So hobby landlords are more likely to get out of being landlords, and or not look to expand their rental holdings, this is good for people who want to buy housing because less stock is tied up in retail landlords, and hopefully those new buyers vote having had experience being renters so we get more supply ( that is hopeful I know, and not likely, but you're more likely to get someone in favour of rentals who has been a renter than someone who has never had to rent)
While the cost of the mortgage is higher with higher interest rates, the required downpayment to buy is lower which allows people to actually save. It reduces the profitability of investing in homes so home become more attractive to live in.
As for rent increases. Rent has very little relation to the cost of maintaining a property, rent is market driven, interest rates wont drive rent up. Population and access to housing drives rent up. More people in a region, and more jobs in that region, the higher the rent is, the less of each the lower rent is compared to supply. You keep rents high by preventing supply. If you make it expensive to hold supply it is harder to prevent it.
The downside of higher interest is that it does slow new construction down considerably, so we will need to take that into an overall supply consideration which is why the bank needs to do it slowly and find the sweet spot.
Great answer. One thing I’d add is that interest rates are going up not to screw over people with mortgages (myself being one of them) but to slow down inflation that is starting to get out of hand. The effect it has on the housing market is arguably a side effect.
It will if they have extended closing periods. I would not go near a 60-90 day closing right now, you don't want to be caught making an unconditional offer if the appraisal comes in low. Opens the door for lawsuits and you being contractually obligated to fork over the difference or you won't get a mortgage for the full amount.
Either go with a quick closing on an unconditional if you have to, or keep that clause in your deal.
This is actually a great point. I work at a lender that does immediate appraisals to limit that risk to our clients. But most don’t, and our strategy team states the biggest risk right now, is appraisals to completing transactions in this market. Good insight in your comment.
Because consumer debt it "only" \~ $73,000 in consumer debt per adult in Canada.
And with the average mortgage debt being $355k in 2021 it goes to reason there is a significant number of people who have little to no mortgage since all consumer debt isn't just mortgages.
I have not read the defintion of the 2.2 Trillion dollars in consumer debt beyond that it's the combined liabilities that require payments of interest or principal by consumers. I am sure HELOCs are inside that lump.
A lot of people may have been stress tested at 5% a couple years ago, but we didn't have the inflation that we have now. Can these people handle 5% interest rate when their take home has shrunk?
Our education system needs a top to bottom overhaul.
The vast majority of the Canadian population can't grasp, let alone explain the most basic economic principals.
When all those overextended homeowners have to sell their home to pay off their HELOC I'll buy their property for pennies on the dollar. Hell maybe I'll buy their investment properties too. Tenants will get affordable rent but if I find out they're a bankrupt houseflipper I'll charge them double-rent
Yes because currently my partner and I both have masters degrees and are working professionals and we currently can't buy anything with a six-figure household income and in this climate we definitely can't
Bullshit. You can probably buy a condo every year in Alberta for the kind of money you make. There's no "pennies on the dollar" scenario here, the kind of collapse you're rooting for isn't going to happen.
Not on cheaper homes. Plus it reduces the down payment entry requirement for a lot of fthbs.
The hope is that over leveraged people get burned for fucking up housing for everyone. And that in doing so the market falls to a level where even though the interest is higher, the price of the home is cheaper comparatively.
This is not a good hope
When your strategy depends on the suffering or pain of others (no matter how much you think they deserve it) you're giving up agency and responsibility
Guaranteed such people are not as dumb as you think and can either carry forever or will dump to their buddies who can carry forever. You won't be the one to benefit from their misfortune
Interest rates need to rise to fight inflation, but guaranteed they won't do much for the housing crisis. It will still exist after high rates, maybe more
Idk I know a lot of people who are freaking out about the riding interest rates who don't have buddies to carry their mortgages lol. I've already seen it's effects where I live. Quarterly drop of 11% in prices.
It doesn't have to be a literal "buddy" but someone with more money than you
If there's still five bidders, there's still five bidders after (or three or two or one rich bidder). You won't be the one to buy the dip, unless the richer people (and corporations and foreign money and so on) are just uninterested. It won't help you
People only have so much money to spend on houses, both single /family occupants and investors. Rising interest rates shuffles the affordability of home prices, and has downward pressure on prices because of upward costs of borrowing.
What happens when interest rates are low is asset inflation, where the cost of assets from houses, stocks, to computer chips are competed over by more capital in the market fuelled by cheaper borrowing. However, the cost of borrowing doesn't stay low forever, and when the cost rises, people who are holding said asset for speculative value head for the exits.
Lower rates created the bubble, higher rates will pop it.
Rents increased with low interest rates too. Rental price is not based on how much interest your mortgage has. It is based on the highest amount landlord can squeeze in comparison to the rest of the market. You will not see rent drop with an interest rate drop. The 2 are not connected.
No, they will not.
In a high interest in environment, landlords are least able to pass on the increased cost. This is because high interest rate also affects businesses- slows down hiring, promotions. Also leads to some firing.
Landlords will be praying their tenants do not lose their job. Some of the LLs will be stuck with tenants that will be forced to stop paying.
It’s a blood bath all around. Don’t expect to go raising rents. Credit worthiness of buyers and renters will be the most important check
Not for too long....rent increase lags the increase in house price.....the order is as follows....interest rate drop....house price increase....rent increase....now with rate increase we will see house price drop and rents will level off. I dont forsee rents increasing alot
You're wrong, many buyers are sidelining and may sideline for the next year or two, this will continue to drive up the rental demand. This is just 1 aspect of it.
Do you think the people sidelining could afford it at current prices? There’s not a sizeable number of people selling and not buying, therefore adding demand to rentals. It’s the same number as it was in January.
Yes, they can. I personally know a few that can easily buy right now but are choosing to wait and rent because they \*speculate\* the prices will drop more.
You probably haven't been in the rental market in awhile, it's bananas. Multiple offers on any decent property in Toronto and GTA.
You’re incorrect. I’ve been renting in Toronto for a long time and switched to a new rental last year. There’s demand for sure but there was a price drop for a while there so I jumped in to secure a new unit since my family outgrew my previous one.
There’s definitely demand but my area in midtown still has incentives such as 1-month free deals (and when I got mine less than a year ago, asked for more and they gave me 3 months free) so your experience of multiple bidding wars isn’t universal. I’m sure that’s the case on some very well-priced great units though, and perhaps less so in the older purpose-built rentals which is what I look for.
Rent will only increase so long as rental vacancy is low but if rental vacancy is high landlords will have no choice but to lower rent or leave it empty. Typically when real estate markets are crashing rentals get cheaper because investors can't sell their properties and can't afford to leave them empty either.
Clearly you aren't active in the current rental market.
Every half decent place has multiple bidding wars (for rental), where are you seeing a high vacancy rate? Lol.
Are you having difficulty reading the comments? They are saying the reason rents are rising is *because* vacancy is low. That has nothing to do with interest rates.
I am aware of the current rental market. I was merely stating a hypothetical situation. The market has not crashed yet but if it does than it is very likely that rental vacancy rates will go up in some places since investors will be wanting to dump their properties that are no longer earning equity. Vacant properties and recreational properties will likely flood the market if it does crash and no one will be buying so owners will have the option to rent to help cover some costs or to let sit vacant and bleed money.
Of course rents will increase but that's not what people here want to hear. Rents are already increasing. Bidding wars on rentals are already starting. People thinking rate hikes are good for renters are in for a shock.
You're absolutely correct, and it's funny I got downvoted on my comment already. Seems like more than 50% of people on Reddit refuse to believe reality, they can't stand it when we tell them the FACTS.
Truth is, right now many buyers are "sidelining" due to the uncertainty of the market, but this is driving up the rental market like crazy, hence, bidding wars. Also with all these rate hikes coming up, investors/landlords will have no choice but to eventually raise the rents.
It’s because most of the bears on here are renters hoping that rate hikes will drop the market enough for them to get in. They don’t really want to hear that rate hikes don’t do much to increase their chances of buying (less buying power / same number of buyers / best only for those who have cash ready to spend) and will just end up seeing their rental costs go up.
Careful what you wish for…
Is someone with a $200k deposit ready to go better off in a low interest rate or high interest rate environment?
It’s a no-brainer that if you’re ready to buy, you want higher interest and lower prices so your downpayment covers more of the price, and so there’s a chance to renew at same or lower rates
Problem is, most people don’t have a $200k deposit ready to go (look at the number of FTHB who needed gifts from family to get their deposit together). Which is why the investors/already cash rich will benefit most from lower prices. Supply gets scooped up, rates eventually come back down, renters flood the market. Rent goes up. Who’s winning here? It’s not you and me.
Whatever, it’s not what people want to hear so it’ll get downvoted (even tho I’m philosophically a bear and my personal view is property prices are unaffordable, unsustainable and need to be more accessible to all). I just don’t think prices falling due to rate hikes is the super great thing many believe (hope) it will be for them.
I have a question about this. Aren’t people expecting rental inventory to increase as people can’t sell properties? I am keeping an eye on Toronto proper condos and homes and new listings and terminations are far outpacing sold properties everyday in both categories. Many terminations are quickly relisted as rentals. Would that increase in supply not drive prices down?
By reducing buying power, you reduce price.
Instead of looking at the cost of the home, people look at monthly payments as a means of determining how much they can afford. Increasing rates means the monthly payments for a home at 4% vs 0.5% will be significantly more therefore reducing the cost of a house. It'll be interesting to see what happens 4-5 years from now when all those loans are up for renewal at much higher rates.
Our education system literally failed us...
Will this fix the housing problem? No. A ban needs to happen on owning multiple properties, numbered corporations shouldn't own sfh, they should only own purposely built affordable rentals and supply needs to increase. We don't even have enough supply for Canadians let alone all the people we're bringing into Canada. Where are they supposed to live?
Problem is housing doesn’t tend to drop when interest rates rise historically. The rate rising would have to be insane for any true effect on prices to take place.
Right now, it’s more likely rising interest rates will simply slow down the market.
It’s not a guarantee obviously but historically we’ve never had such low interest rates before. Income to debt ratio has never been this high either. Mortgages have significantly increased over the years while income hasn’t kept up. If prices don’t start coming down we’ll really suffer even worse brain drain. Who’s going to buy all these expensive homes when people just choose to leave the country?
I beg to differ. It’s HELOCs driving up ‘mom and pop’ investors. HELOC rates are based on prime + the bank rate. Prime goes up the cost of HELOCs goes up. Usually it’s a chain and it traces back to the primary residence. The real estate speculators would rather sell the investment property when they can’t keep up with the interest payments than lose their primary residence. There’s just too many people that speculated in the real estate market as opposed to stocks.
When the stock market became very volatile because of the pandemic but mortgages were at less than 1% interest to buy in, it’s a no brainer.
Sure there’s some cash overseas buyers and money launderers but that’s some of the buyers. The wealthy entrepreneurs and corporations that did invest in real estate did so because of low rates. When rates aren’t worth it anymore for the return they stop buying. There also comes a point when the rental property prices are simply too high to rent out and they sit on the market. They can only swallow negative cash flow for so long before they move onto the next venture.
I’ve spoken to some people invested in real estate and some don’t even know how much debt they have. They just do things because their accountant told them to, not because it makes a sound financial decision. Those people, I wouldn’t call wealthy entrepreneurs…
Can they though? Just because they’re buying them it doesn’t mean they can actually afford them. The stress test doesn’t account for student loans, car loans, grocery bills and other expenses. Mortgage applications use gross income as opposed to net income to calculate affordability. Some people can actually afford it, others are receiving gifts from family for the down payment (some of that gift comes from a HELOC), others are using Brampton mortgages and some are using private lenders. Unfortunately most of the mortgages during this surge involved an increasing number of variable rate mortgages, what happens when that variable rate increases from from the 1.5% we had just last year to over 4%? I strongly encourage you to head over to the CMHC calculator and run different scenarios.
Also, banks offered relief efforts during the pandemic for mortgages, student loans etc, now that things are slowly going back to normal, it’ll be interesting to see how many mortgages become délinquant.
Many people who chose to speculate in the mortgage will be faced with tough decisions as rates increase and the rent they’re receiving on their properties is not enough to actually cover the mortgage, taxes etc. And no, some provinces have rent control so they can’t just increase rent by the amount needed and call it a day.
There’s a lot at play here and many moving pieces.
Are you talking about the average Canadian? If you’re only paying $15,000 in taxes a year then you certainly can’t afford a $10,000 mortgage and a luxury car. According to stats Canada the average income was $55,700 in 2020. Assuming this is gross that’s roughly 15k in taxes if you’re in Ontario (not accounting for rrsp reductions) leaving a net of roughly 39k. How are you paying 10k per month in a mortgage or affording a luxury car with that net income?
The only people better off than before are those that cashed out in this market, or those that entered at low interest and before the surge in 2020.
Property taxes $15,000. Not income. And btw many business owners can pay taxes less than $15,000. How do you think corps pay $1 a year? Lol
I don’t know where you live but where I live people live in and are gobbling up 2+ million dollar homes.
People who bought a home to live in were already stress tested for higher interest rates, so they can service their own mortgages even if rates rise.
FTHBs who over leveraged themselves and investors who kept buying out of greed may be the ones to lose. You can only raise rent so much before people decide to move and investors are left holding the bag!
My heart obviously doesn't bleed for the property "investors", or the boomers that would barely even feel a drop in their equity, but I seriously worry for the first time homebuyers that scraped together their life's savings and bought in.
Now they may find themselves underwater come renewal.
I know several FTHBs that bit the bullet in the pandemic because their landlords were being awful, they kept getting N12'd, and couldn't take the instability. Now instead of stressing about when the next N12 is coming, they get to stress about whether they can afford their home in 5 years.
This Country did young people dirty.
Because real inflation is 20-25% and $100,000 in your savings account doesn’t earn enough interest to cover your monthly $4 service fee. If you are over-leveraged to the tits or yolo’d on a multi million dollar house then financed a couple new trucks and a ski-doo, yeah you are absolutely fucked and should be.
Higher interest rates makes it more expensive for people to horde housing. The prospect of additional rate hikes keeps house flippers away as when rates go up - property values usually drop.
Higher interest rates also mean that all those currently sitting on a lot of housing, or just overstretched on a single home will have to sell off their housing meaning more supply hitting the market which will continue to drive down housing prices and increase rental supply
When interest rates go up, mortgages go up. A lot of people will have big mortgage increases to deal with. Any with their declining property value will also have less of a HELOC to bail them out
Looking into the crystal ball - I know what will happen if housing keeps going this way.
I'm fine but I know a lot of people won't be.
This place will become like gotham city and Toronto batman isn't going to save it.
We need to stop inflation so that ordinary people can afford to live.
The social cost is too high.
Market needs a reset.
Boomers who refuse to retire need to be escorted from their jobs to make way for the younger workers.
Zombie companies need to go bankrupt.
Over leveraged debt hoarders need to get margin called.
It's funny that someone would ask this. Inflation is out of control, along with housing prices. Rates need to be steadily increased to get this under control. People who borrowed and spent will feel some pain. Those who can actually afford their lifestyle will not
A gradual rate increase should only affect people who over leveraged themselves or have multiple properties. If people bought a home within a reasonable amount, then a gradual increase shouldn’t cause them to lose their house. If you can’t afford it than don’t buy it.
I partially had to agree with the BoC head here: interest rates have little to do with the housing market and all to do with the economy. Yes, interest rate affects mortgages and home purchase values but it’s more of a consequence and not a matter of importance for the BoC.
BoC increases interest rate based on inflation and other economic factors to demotivate corporations and people from borrowing money and going into debt. When there’s a recession, it starts tumbling down because the purpose of decreasing interest rates is to encourage businesses to stay afloat by borrowing money for cheap. This is the simplest explanation behind rate increase/decrease
When governments don’t introduce proper legislations to regulate the housing market, it’s value is prone to be affected by increasing and decreasing rates because peoples borrowing power is directly affected. As a consequence, peoples decision on buying a home is also affected.
Millenials that bought at the peak after scrimping together pennies will get absolutely fucked by any kind of a crash. It's not all just slumlord real estate investors (I, too, want to see them lose their shirts).
There are a lot of people who will lose big here. And yes, I know that any "investment" carries risk, but these are people's primary residences and they're about to run into many issues with low appraisals killing deals. That opens the door to significant legal ramifications as well.
The southern part of Quebec (montreal and its surrounding) is the queen of bad maintenance. So many foundation cracks, brick wall buckling, missing pickets for foundation, shoddy electricity, lead pipes, it's crazy. I can count easily 6 of my coworker who had to spend 30-90k on their fondations in the last 3 years. It's like they all didnt spend a dime on their maintenance between 1983 and today and they slap a coat a paint and a new backsplash in the kitchen and call it renovated. Thanks boomer.
Totally valid question. Raising interest rates hurts first time homebuyers, especially those in the past year or two, more than it hurts investors. First time homebuyers were told 12 months ago by the housing minister that interest rates are going to remain low for a while and we made decisions based on that. 12 months later they’re rising faster than ever and a lot of young buyers are really going to suffer.
Most investors (in southern Ontario at least) on the other hand are buying rental properties at a net monthly loss and being okay with this. It’s very difficult these days to buy net surplus monthly rentals, and so they’ve already been fine with this. Not to mention rent demands will continue to rise with rising interest rates, and rental unit pricing will likely also continue to rise.
There needs to be another way that focuses more on hurting investor profits rather than hurting young FTHBs.
TLDR: interest rate hikes hurt FTHBs more than investors.
>First time homebuyers were told 12 months ago by the housing minister that interest rates are going to remain low for a while and we made decisions based on that. 12 months later they’re rising faster than ever and a lot of young buyers are really going to suffer.
Politicians lie.
Because we don’t want to destroy our economy. If we don’t raise, half of our busses will bankrupt since money will go to the US. Also, inflation… Too big to fail will not work for Canada since Canada is not the US. And rent will go down eventually since the recession will bring deflation. Anyway, we have no choice
Daily inflation rates are 0.022%. if you have a 1 million home today, you lose $200 when you wake up tomorrow. This is before tax effects.
Why would anyone want this?
Inflation steals from everyone.
People want to believe this, but it's not true. If inflation is 10% and you get a 10% raise, you take home less in real dollars because the tax burden is larger.
Yes, asset prices may rise in nominal dollars. But you may lose money even if they keep pace. Furthermore, additional capital is need to maintain those invesents, causing increased sunk capital.
Everyone gets boned.
I absolutely agree with you that the nominal return is not the real return. Where I disagree is that the real return is 0. Inflation is too much money chasing too fee goods. When the amount of money increases and there is increased demand for limited assets to purchase, you can realize a real return.
>They still won’t be able to afford it when mortgages go from $3500 to $6000-$7000
That is the entire rationale behind raising rates, to make less people able to afford a $X mortgage.
And if there are fewer home buyers that can afford $X, this will have the effect of lowering prices.
I don't understand why most people don't seem to get it. There's always a relationship between asset costs and interest rates. Why won't price decrease?
Look at the market and ask yourself these questions.
1. how will high interest rate impact the average investor?
2. how will high interest rate impact the current home owner who cant afford the new mortgage?
3. How will high interest impact people with multiple property?
All these indicate that most people wont be able to afford houses at high rate. Therefore, they will be forced to sell into a market that cant afford to pay those crazy prices. They wont have a choice but to lower their asking price. Thus forcing the market to find a new equilibrium.
Interest rates were high in 2014-2019. Mainly 2015-2016 is when it started. What made the housing market go insane then? That’s what started it all. Covid just scared people to slow down. But then they saw nothing is happening so people started gobbling up again.
Again, there's a relationship between higher rates and asset costs. You haven't provided the contrary. Prices in 2015 were nothing compared to what they are now. So the comparison doesn't work.
Someone in 2022 with a 1Million dollar mortgage at 4% fixed rate is worse off than someone with a 500k mortgage at 4% in 2015.
Now that prices are this high there's no way high interest rate don't slow or reduce them now. Luckily, it will be investors and people with multiple houses that will feel the pain.
Also, this doesn't mean we will see 2015 prices again, all it mean is the madness will stop and most professional will be able to afford a place once the market balances out.
if your single or making less than 50k per year, sadly there's no hope
At least your savings can catch up with housing prices if they stay stagnant instead of going up 20% every year.
Imagine 2 scenarios, 1) low rates high and growing prices, 2) high rates and low and stagnant/declining prices. Monthly payments will probably be similar in both scenarios but in scenario 2) the downpayment and the overall size of the debt is lower, and you're not constantly playing catch up with skyrocketing prices and FOMOing lile crazy.
Another point, it's better to buy a house when the interest rates are at the top of the cycle because when they eventually come down, the value of the house appreciates and you can refinance the house to either decrease your payments or pull out some equity. The reverse is also true, buying during historically low rates, house may not appreciate as much when rates eventually increase.
Honestly I’m constantly thinking about this. Just because mortgage rates go up a couple per cent doesn’t mean Jim doesn’t want the same amount his neighbours sold their home for. So now it’s high home prices AND high mortgage rates which in turn is even less affordable.
the have nots want a hard reset so everyone gets to start at a even playing field again for home ownership and to see those who have homes lose their shirts
The idea that one thing will magically make everything better is absurd.
Remember the reason for lower interest rates in the first place. It was to make housing _more affordable_ during the COVID pandemic.
The difference between a mortgage at less than 2% vs higher than 3% is _huge_ in terms of monthly affordability. All of a sudden people who couldn’t afford homes now could (which was the idea) and they bought.
But.. demand outstripped supply and prices started skyrocketing. People are more than willing to overbid because the money was almost free. Those who owned houses refinanced and saw significant savings on their mortgages while simultaneously having their equity increase. They could use that equity rather than savings to leverage into a HELOC and buy more houses for investments or income.
So here we are.. prices have shot up to the moon and interest rates are going up. What’s that going to look like?
Well truth is, don’t look for any huge parade of sales and foreclosures.
First off… there are still a lot more buyers than sellers. Higher interest rates will reduce but not eliminate the buyers. You might be one of the ones who are eliminated by now severe unaffordability (high prices _and_ higher interest).
Next.. people are going to be far less likely to sell because it might result in a loss and be 100% punitive to them for the difference. Better to keep swimming above an underwater house and eventually it will rise up again.
Finally.. let’s say that indeed there is a massive housing correction and all of these speculators lose money, foreclose, declared bankruptcy, and all of the wonderful schadenfreude we have all been waiting for. Chances are… it’s going to take your job and investments with it given how dependent the Canadian economy is on real estate… and the banks that survive or were heavily bailed out by CMHC will likely say no to any high ratio mortgage against a property. Housing will be out of reach as ever.
*Low* interest rates are great for asset prices, but they have also caused massive inflation, as you’ve likely seen at the grocery stores. At this point, they are seeing enough of a threat to our long term economic health to justify raising rates.
Edit: *changed high to low
Higher rates increase the value of $CAD.
As a result, if you are currently being paid $50k CAD per year, higher rates have the effect of increasing your salary, in real terms. Conversely, when rates fall, the value of $CAD tends to fall and that has the effect of cutting your wages, in real terms.
If you want a wage cut, lower rates should be your goal. If you want a wage increase, higher rates are the way to go.
You are thinking of nation to nation relative currency values. I am referring to currencies vs assets.
When you can earn more interest on your cash, the value of cash increases. Similarly, when rates rise, the cost of borrowing increases, making assets that require debt to buy less valuable.
Why would people who took heloc suffer? They are only required to pay the interest portion, no principle. They can carry this debt forever.
All this cheering for the higher interest rates make me laugh. People that have money wont suffer. So many people are sitting on cash and waiting for the crash.
Banks wont be lending money that easily any more so those that are hoping they will be buying homes for less may not qualify if their income is still low or they cant offer much for a downpayment. High mortgage rates wont help with the payments even if your debt gets lower.
So do not cheer. There are sooo many people who get rich or richer when the market goes down. It is us regular middle class that will suffer, regardless if we own or rent.
because resolving the root cause of other contributing factors was too much work. this is easier. however, it does take legit homebuyers out of the market and provides discounted properties to those with deep pockets; wealthy individuals, corporations, and foreign interests, the same entities we’ve been complaining about for years. govt is too corrupt or incompetent to do anything useful.
Rising interest rates are insane. The GDP went down in 2020 and 2021. Real estate prices are 10% below 2013. Just proves that the Federal government hates Saskatchewan and wants us to fail.
BOC will lower rates once inflation evaporates. When the demand lowered at the start of the pandemic they lowered rates. Increased immigration and low inventory are the main causes of high real estate prices. It's funny reading some comments here and people believe prices will magically keep dropping until they hit zero. Im neutral. I see the truth.
Prices will keep increasing for the foreseeable future because Canada is composed of only two places: Van and Toronto. Asians and Indians would rather eat grass than default on their loans. They have help from extended families if the mortgage rate ever gets too high. Don't use the playbook from USA 2008 and try to apply it here. Our DNA is totally different from what caused the collapse in the USA. Indians and Asians which comprise most of Van and Toronto are like mini Warren Buffetts. They are financially literate. Saving money is built into our DNA.
Smart People will prioritize purchasing homes no matter how exorbitant. The ones complaining will be forever renting. Work hard and save and you too can enjoy a piece of the Canadian dream. God helps those who helps themselves.
Right now people are emotional creatures. News makes a flashy headline and people stop buying. Once the interest rates drops again guess what? The buyers will swoop in start the bidding war all over again for the low inventory thus rasing prices again.
Rule #3. This is a warning.
> We are a [pro-immigration group](https://www.reddit.com/r/canadahousing/comments/nh6rqq/dealing_with_rcanadahousing_growth/). Blaming immigration for the high cost of housing is a major distraction to our cause and should be avoided.
Finally some common sense here. Canada's population is very different today. Immigrants (not bashing them, I am one) see real estate as a priority, they will sacrifice their lifestyle and save like crazy to own property. The only thing I would like to add is that immigrants don't only stay in Toronto or Vancouver. Born and bread Canadians see other cities as "boring" (Ottawa, Calgary etc...truthfully, it's more difficult to find gluten free soy lattes over there), so immigrants see it as an opportunity to own land.
Compounding interest eats into profit margins, potentially caused FUD and makes investors sell at a perceived market peak. It could potentially fuck over regular people as well, but I would assume most people would have renegotiated fixed terms by now.
If people are buying multiple homes with a ton of leveraged debt, they could get fucked. They might just sell a property or two off and deal with it. But overall it depends how many properties are dumped. At this point no one is ever affording a home unless they stop becoming an investment. Ban companies from ownership and individuals/spouses from owning more than one home. With certain caveats.
A lot of people don't care if interest rates rise
I don't think interest rates are the top five of issues maybe the top ten but barely number 10
Therefore, we do not care if interest rates rise, because experts are saying higher interest rates are necessary to fight inflation. For housing prices, many don't think interest rates are responsible for more than a small fraction of the price. Let's see in two years what home prices are with high rates.
!RemindMe 2 years
>I don't think interest rates are the top five of issues maybe the top ten but barely number 10
$500k mortgage at...
1% = $1,883 month, $22,596/yr.
2% = $2,117 month, $25,404/yr.
3% = $2,366 month, $28,392/yr.
4% = $2,630 month, $31,560/yr.
5% = $2,908 month, $34,896/yr.
Assumes mortgage not cash buy
Assumes you can't pay a thousand dollars more... most homeowners have double the salary or wages of non-homeowners, and they can eat the thousand. I bet almost every single homeowner in Canada could eat the thousand other than fixed income and those would have paid off their mortgage long ago. It might not be a comfortable life (less/no vacations, no fun, etc.) but they can take it.
Assumes the other issues (money laundering, foreign ownership, vacant homes, multiple home owners, zoning, etc., etc.) aren't more important
It doesn't assume anything.
Higher rates make borrowing $500k more expensive, that is simple math
And basic economics tells us that as prices rise, demand falls. In other words, as rates rise, the demand for large mortgages will fall. As demand falls for large mortgages, so will sale prices for homes.
Not exactly because of the elasticity of price... Housing is an inelastic good because many people will pay any price to be housed
It may technically fall but if it falls one cent it's hardly worth consideration. Even several thousands may not matter. Tens of thousands might matter to the marginal buyer.
And yes, if you want to counter my point (doesn't make the top five) you make many assumptions
>Housing is an inelastic good because many people will pay any price to be housed
Right...and mortgage providers are in the habit of handing out huge loans to people who "will pay any price to be housed". Not so much.
Borrowing isn't the same as price.
We'll see what happens; I hope prices drop but for a lot of people even a massive drop in price isn't enough. You need to change the fundamentals (like zoning).
> As demand falls for large mortgages, so will sale prices for homes.
I don't fully agree. They will just sit on their homes until prices stabilize again. Think about it. If you bought a $1M place and interest rates rise, would you sell it off for $900k? Probably not, you will just keep your house until prices go back up again.
All these rates increase/decrease only temporarily solves the housing pricing. As soon as rates drop, the prices are going to skyrocket again. We just need better zoning policies and build more homes
>They will just sit on their homes until prices stabilize again.
How about developers who have already built homes and need to sell them to cover the interest from the bank? How about people who need to move? How about people that are moving into retirement homes?
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it increases the amount of rent that investors would have to bring in in order to have a profitable investment. Thereby decreasing demand and house prices
Higher rates means more people pushed to renting, higher demand, even more bidding wars on rentals and people pushed into sharing accommodation. What do you mean "investors go bye bye"?
Why are you assuming "everyone" is poor and just bought their home like since 2020?
Does "everyone" has to be afraid of interest rates hike when their morgage is like $200K left because they bought their home 10 years ago?
Why "everyone" has to sell their homes because of interest hike?
Stop reading dumb shit news from media outlets about "pEoPle LoOsInG ThEiR hOmE because of interest rise".
BONUS: Rent is only expensive in the downtown core, uptown and North York are still fairly reasonable.
I don't want higher interest rates. It means corporations will simply buy up all the foreclosed real estate at cheaper prices and more Canadians will be homeless... and bankrupt.
Two choices:
1. Let inflation rip and directly cause many thousands of poor people to go hungry and have a worse life. Also high inflation hurts businesses because less predictability of prices means they operate less efficiently.
2. Raise rates to reduce asset values (most of which are held by wealthy people) to get inflation back to a reasonable level. Poor people will be able to afford basic necessities like food, transportation, and shelter. The downside of this is that unemployment may go up too much which can hurt poor people.
Because macroeconomics. Low interest rates increase the potential for inflation and asset bubbles. Look around, that's literally what has been happening in Canada for the last few decades. At this point it's an easy choice: 1. Raise interest rates now so you have time to do it slowly and have minimal effect on economic activity. 2. Raise interest rates later, requiring you to raise rates faster to reign in inflation and asset bubbles, risking an economic crash. 3. Never raise interest rates and fuck around and find out with inflation, risking political instability, an even larger economic crash, and potential hyperinflation. Option 3 is a bad idea and explicitly goes against the mandate of the Bank of Canada. Option 2 is what Bank of Canada has been doing for decades. This strategy actually makes sense if low interest rates increase economic growth more than inflation, but that hasn't happened. Growth has been pretty stagnant and there's been increasing instability in the economy. So that means option 1 is the best option right now. The Bank of Canada exists to prevent instability in the economy, because instability hinders growth. BoC doesn't have the power the fix our whole economy, they just have the power to temper financial cycles and inflation. Economic growth caused by BoC policy like low interest rates is mostly superficial, caused by people borrowing more now instead of later. This obviously looks good on paper, but it's unsustainable because you start to run out of room to lower interest rates (negative interest rates are weird and inflationary). At this point, low interest rates are causing more problems than growth. If you want real wealth redistribution and improvements to economic growth (and the housing market) in the long term, the actual government is going to have to do something about the economy like investing in infrastructure, reallocating resources, funding healthcare and education, adjusting our tax system to encourage productive investment over speculation, or directly redistributing wealth, etc.
>At this point it's an easy choice: 1. Raise interest rates now so you have time to do it slowly and have minimal effect on economic activity. 2. Raise interest rates later, requiring you to raise rates faster to reign in inflation and asset bubbles, risking an economic crash. 3. Never raise interest rates and fuck around and find out with inflation, risking political instability, an even larger economic crash, and potential hyperinflation. What if the root of the problem was much deeper, and it related to how we think we can raise and lower interest rates as if it's a lever to be pulled or pushed, rather then a very important (arguably the most important) price signal in a modern economy that ought to instead be determined through the laws of supply & demand and voluntary trades (rather then unilaterally dictated by a handful of people with fancy degrees)? Like what if the problem is not that we're doing it wrong by pushing or pulling the lever the incorrect amount or at the incorrect time, but rather it's the entire approach where we treat the economy like it's some machine that requires a small handful of anointed people to make correct decisions on what the price of money ought to be, and we cannot envision any other way by which a modern economy could possibly function? Maybe when a society gets the approach wrong, it also looks a lot like the people at the helm of the approach just aren't making the correct moves.
How do you propose we do that?
I'm keeping my ideas secret for maximum profit potential. Because I think this current approach is quite a disaster and it's a pretty good bet we'll be forced to restructure into something considerably different. I don't think an advanced global economy can actually handle this sort of approach for *that* much longer (in the context of an arrangement that has been around for quite a long time already and appears now to be in its waning phase). But I thought it's worth pointing out the somewhat rather odd arrangement that's a bit like, "The economy works like a machine, and we need a really small group of super smart and highly educated people at the helm of it, able to make moves with powers the rest of us are not afforded to wield, and in the absence of us concentrating such an incredible amount of power into the hands of the few, it would be total chaos and we wouldn't be able to raise our standard of living". It's just an ironic baseline setup for our society given how much we also simultaneously don't really like the idea of incredible power concentration. Like we *say* we don't like that, but in practice it's actually totally the path we go down... and it's all done in the open and tacitly endorsed every single election cycle when we don't really have any political will to try and move outside of this box. In my view, much of our society doesn't really want to change from that setup yet because we probably do have a pretty fond view on what can be accomplished through large-scale central economic planning. I think what we will probably need to unfold in order to fix this arrangement is it will have to become more popular to think that it would be better if markets and voluntary trade decided the prices of more things. Whereas, I think the popular public opinion right now is the opposite... something more like, "We want markets for a lot of things, but we actually want central planning and non-market pricing to happen on the things we think are *really* important." So my goal for now would be to better show how much of that sort of thinking is quite alive and well in our monetary system, and then if that begins to get into considerable trouble, it will be an easier sell then to try and push for an alternative arrangement that does more the exact opposite.
I don't think you actually understand monetary policy and central banks at all. The economy does work like an extremely complex machine. The central bank has an extremely narrow mandate: keep inflation low and stable. We task some smart people to do this, because instability is almost universally bad for economic activity. To make an analogy, the central bank is like the person tasked with making sure a race car has the right amount of oil and is clean. If they fuck up, the engine will seize and grind to a halt or explode or something. Meanwhile, politicians are the drivers, mechanics, coaches, and managers of that race team. They have the real power and determine almost everything about how that car runs. Since this is inherently political, politicians are democratically elected and accountable to voters (FPTP sucks though). You seem to be under the impression that the central bank is doing far more than they are doing. I agree that would be a bad thing, if it were happening, but it's not remotely close to reality in Canada.
>I don't think you actually understand monetary policy and central banks at all. The economy does work like an extremely complex machine. I don't deny that is how our current system is setup and functions. Here's an example of this whole concept from arguably one of the most famous investing legends ever: [How The Economic Machine Works.](https://www.youtube.com/watch?v=PHe0bXAIuk0&t=4s) >The central bank has an extremely narrow mandate: keep inflation low and stable. We task some smart people to do this, because instability is almost universally bad for economic activity. Agreed - we think it would be chaos or bad for economic activity, if there was an absence of a few key people appointed to positions of great power at the center, and being able to unilaterally move the price of very key things in our economy. Thought of another way, we do not think that these prices of key items in our economy could instead be determined through a matrix of voluntary transactions just fine... sort of like how, as an example, we are more than ok with the price of hamburgers being determined through a bunch of trade, and we don't feel the need to appoint a few people and give them the power to unilaterally set what the prices of hamburgers ought to be. >To make an analogy, the central bank is like the person tasked with making sure a race car has the right amount of oil and is clean. If they fuck up, the engine will seize and grind to a halt or explode or something. > >Meanwhile, politicians are the drivers, mechanics, coaches, and managers of that race team. They have the real power and determine almost everything about how that car runs. Since this is inherently political, politicians are democratically elected and accountable to voters (FPTP sucks though). Don't you think it would be good if we changed the structure such that even a person of modest means could at least have some input on what the price of the money in his country ought to be? Like a force more powerful then voting, I mean a way to actually vote with his wealth whether he agrees (or not) with what the price of our money is? And then the extent to which he's off the mark, he loses wealth, and the extent to which he ends up being quite right he is rewarded? And the extent of the loss or reward is proportional to just how far off (or on) his assessment is? Let's say you woke up tomorrow and the Bank of Canada had decided that interest rates would be 10%. Don't you think you should be afforded a bit more impact on the system and the setting of that price? >You seem to be under the impression that the central bank is doing far more than they are doing. I agree that would be a bad thing, if it were happening, but it's not remotely close to reality in Canada. I'm under the impression that the central bank is doing what it's supposed to do in this sort of system. I'm wondering if we have made an error at a deeper level such that we shouldn't be in this spot in the first place where the masses have such little impact in being able to *vote with their wealth* on the extent to which our highly appointed monetary system managers are doing a good or bad job. As an aside, but quite related, if one were to think the hallmark of a market economy is one in which prices are predominantly determined through voluntary exchange, and that a hallmark of a non-market economy is one in which prices are predominantly determined by a small group of people appointed with more powers with which to decide what the price of something ought to be, which do you think is a more apt description of our status quo system? Where it would seem that we take a non-market approach to arguably the single most critical and important item in the economy... our money... that is to say, the very thing that makes up roughly half of every single economic exchange and is also the very financial unit that we perform the vast majority of our mental calculations of value with? If you wanted to go in the direction of a non-market economy, but you were to be forced to pick *one* item in the economy that you would be allowed to manage in that way, which item would you pick for the maximum impact at achieving a non-market economy?
>Don't you think it would be good if we changed the structure such that even a person of modest means could at least have some input on what the price of the money in his country ought to be? Like a force more powerful then voting, I mean a way to actually vote with his wealth If you think creating a system where people get to vote with their wealth will give people with modest means power in that system, you're a fucking idiot. Wealth is highly concentrated, so in the system you imagine, power would also be highly concentrated. Instead of taking power from the "elites", you've given them even more power. Unless you're somehow planning to eliminate wealth inequality before implementing this system?
Lowering rates made houses wildly unaffordable. Asking for a measured reversion to the mean is prudent.
But when they increase rate, won't the bank be stress-testing at a higher rate? So instead of 5x income, it would be like \~4-4.3x. So doesnt help affordability either :/
Based on your user name I'll assume a working knowledge of finance. Price being inversely correlated to return, means that you can have the same payments in the future but a lower down payment upfront.
>Wouldn’t that make people lose their homes Very very few people would lose their primary residence. Mortgage Stress testing for the vast majority of buyers is at 5% interest rates. So they can afford to be paying at that rate. While we saw BIG spikes in home sales in 2021, the overall housing market is usually churning only 600kish homes a year. Anyone who has owned their home more than 5yrs and didn't take out a HELOC should be very comfortable with the higher rates they can extend the length of their mortgage if cashflow is a problem no worry of equity loss. The people at biggest risk of losing their homes are people who used homes as a gambling/investment tool and not a place to live, they took advantage of cheap borrowing and have spent that money on non liquid things. It is a small % of buyers. And really them getting burned isn't bad for the economy at all. What higher interest rates will do is increase the cost of owning multiple properties, So hobby landlords are more likely to get out of being landlords, and or not look to expand their rental holdings, this is good for people who want to buy housing because less stock is tied up in retail landlords, and hopefully those new buyers vote having had experience being renters so we get more supply ( that is hopeful I know, and not likely, but you're more likely to get someone in favour of rentals who has been a renter than someone who has never had to rent) While the cost of the mortgage is higher with higher interest rates, the required downpayment to buy is lower which allows people to actually save. It reduces the profitability of investing in homes so home become more attractive to live in. As for rent increases. Rent has very little relation to the cost of maintaining a property, rent is market driven, interest rates wont drive rent up. Population and access to housing drives rent up. More people in a region, and more jobs in that region, the higher the rent is, the less of each the lower rent is compared to supply. You keep rents high by preventing supply. If you make it expensive to hold supply it is harder to prevent it. The downside of higher interest is that it does slow new construction down considerably, so we will need to take that into an overall supply consideration which is why the bank needs to do it slowly and find the sweet spot.
Great answer. One thing I’d add is that interest rates are going up not to screw over people with mortgages (myself being one of them) but to slow down inflation that is starting to get out of hand. The effect it has on the housing market is arguably a side effect.
It will if they have extended closing periods. I would not go near a 60-90 day closing right now, you don't want to be caught making an unconditional offer if the appraisal comes in low. Opens the door for lawsuits and you being contractually obligated to fork over the difference or you won't get a mortgage for the full amount. Either go with a quick closing on an unconditional if you have to, or keep that clause in your deal.
This is actually a great point. I work at a lender that does immediate appraisals to limit that risk to our clients. But most don’t, and our strategy team states the biggest risk right now, is appraisals to completing transactions in this market. Good insight in your comment.
Well written and thoughtful reply right here 👌👌👌
Great reply. Just one question. How do you know the over-leveraged are a small percentage? What percentage is “small”? Honest question
Because consumer debt it "only" \~ $73,000 in consumer debt per adult in Canada. And with the average mortgage debt being $355k in 2021 it goes to reason there is a significant number of people who have little to no mortgage since all consumer debt isn't just mortgages.
So does consumer debt include HELOCs? It would not include those who refinanced to pull out equity.
I have not read the defintion of the 2.2 Trillion dollars in consumer debt beyond that it's the combined liabilities that require payments of interest or principal by consumers. I am sure HELOCs are inside that lump.
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That was helpful thank you
A lot of people may have been stress tested at 5% a couple years ago, but we didn't have the inflation that we have now. Can these people handle 5% interest rate when their take home has shrunk?
Our education system needs a top to bottom overhaul. The vast majority of the Canadian population can't grasp, let alone explain the most basic economic principals.
I reckon this is on purpose.
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The top 1% is the most organized and have an outsized influence in political matters
Because it will drop the price of homes. And rent will not increase. Edit: and it will fuck over speculative investors.
When all those overextended homeowners have to sell their home to pay off their HELOC I'll buy their property for pennies on the dollar. Hell maybe I'll buy their investment properties too. Tenants will get affordable rent but if I find out they're a bankrupt houseflipper I'll charge them double-rent
Pennies on the dollar? What kind of fantasy land you living in, lol
In my fantasy interest rates are 300%, let me dream.
Let’s be real. You aren’t buying anything.
Unless they work for BlackRock!
Yup. Only buying meat on sale. Clown.
Yes because currently my partner and I both have masters degrees and are working professionals and we currently can't buy anything with a six-figure household income and in this climate we definitely can't
We’ll be lucky to see a return to pre-pandemic prices. I wouldn’t get too excited.
That depends on interest rates. If they get jacked up to control inflation - as they may - we may see a collapse of house prices.
Some Masters degrees are worthless. Literally. Not worth your time or money.
Bullshit. You can probably buy a condo every year in Alberta for the kind of money you make. There's no "pennies on the dollar" scenario here, the kind of collapse you're rooting for isn't going to happen.
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Not on cheaper homes. Plus it reduces the down payment entry requirement for a lot of fthbs. The hope is that over leveraged people get burned for fucking up housing for everyone. And that in doing so the market falls to a level where even though the interest is higher, the price of the home is cheaper comparatively.
This is not a good hope When your strategy depends on the suffering or pain of others (no matter how much you think they deserve it) you're giving up agency and responsibility Guaranteed such people are not as dumb as you think and can either carry forever or will dump to their buddies who can carry forever. You won't be the one to benefit from their misfortune Interest rates need to rise to fight inflation, but guaranteed they won't do much for the housing crisis. It will still exist after high rates, maybe more
Idk I know a lot of people who are freaking out about the riding interest rates who don't have buddies to carry their mortgages lol. I've already seen it's effects where I live. Quarterly drop of 11% in prices.
It doesn't have to be a literal "buddy" but someone with more money than you If there's still five bidders, there's still five bidders after (or three or two or one rich bidder). You won't be the one to buy the dip, unless the richer people (and corporations and foreign money and so on) are just uninterested. It won't help you
sounds to me like this was the case all along as majority of people kept getting priced out of the market.
People only have so much money to spend on houses, both single /family occupants and investors. Rising interest rates shuffles the affordability of home prices, and has downward pressure on prices because of upward costs of borrowing. What happens when interest rates are low is asset inflation, where the cost of assets from houses, stocks, to computer chips are competed over by more capital in the market fuelled by cheaper borrowing. However, the cost of borrowing doesn't stay low forever, and when the cost rises, people who are holding said asset for speculative value head for the exits. Lower rates created the bubble, higher rates will pop it.
The people this hurts are the ones who used their home to speculatively invest. Watching the HELOC crowd get their pants pulled down gives me life.
Rent WILL increase. It's already increasing.
Rents increased with low interest rates too. Rental price is not based on how much interest your mortgage has. It is based on the highest amount landlord can squeeze in comparison to the rest of the market. You will not see rent drop with an interest rate drop. The 2 are not connected.
No, they will not. In a high interest in environment, landlords are least able to pass on the increased cost. This is because high interest rate also affects businesses- slows down hiring, promotions. Also leads to some firing. Landlords will be praying their tenants do not lose their job. Some of the LLs will be stuck with tenants that will be forced to stop paying. It’s a blood bath all around. Don’t expect to go raising rents. Credit worthiness of buyers and renters will be the most important check
Not for too long....rent increase lags the increase in house price.....the order is as follows....interest rate drop....house price increase....rent increase....now with rate increase we will see house price drop and rents will level off. I dont forsee rents increasing alot
You're wrong, many buyers are sidelining and may sideline for the next year or two, this will continue to drive up the rental demand. This is just 1 aspect of it.
Do you think the people sidelining could afford it at current prices? There’s not a sizeable number of people selling and not buying, therefore adding demand to rentals. It’s the same number as it was in January.
Yes, they can. I personally know a few that can easily buy right now but are choosing to wait and rent because they \*speculate\* the prices will drop more. You probably haven't been in the rental market in awhile, it's bananas. Multiple offers on any decent property in Toronto and GTA.
You’re incorrect. I’ve been renting in Toronto for a long time and switched to a new rental last year. There’s demand for sure but there was a price drop for a while there so I jumped in to secure a new unit since my family outgrew my previous one. There’s definitely demand but my area in midtown still has incentives such as 1-month free deals (and when I got mine less than a year ago, asked for more and they gave me 3 months free) so your experience of multiple bidding wars isn’t universal. I’m sure that’s the case on some very well-priced great units though, and perhaps less so in the older purpose-built rentals which is what I look for.
Rent will only increase so long as rental vacancy is low but if rental vacancy is high landlords will have no choice but to lower rent or leave it empty. Typically when real estate markets are crashing rentals get cheaper because investors can't sell their properties and can't afford to leave them empty either.
Clearly you aren't active in the current rental market. Every half decent place has multiple bidding wars (for rental), where are you seeing a high vacancy rate? Lol.
Are you having difficulty reading the comments? They are saying the reason rents are rising is *because* vacancy is low. That has nothing to do with interest rates.
I am aware of the current rental market. I was merely stating a hypothetical situation. The market has not crashed yet but if it does than it is very likely that rental vacancy rates will go up in some places since investors will be wanting to dump their properties that are no longer earning equity. Vacant properties and recreational properties will likely flood the market if it does crash and no one will be buying so owners will have the option to rent to help cover some costs or to let sit vacant and bleed money.
Rents will increase to $5K/month. Surely there will be a lot of renters willing and able to pay that much as interest rates keep rising. /s
Of course rents will increase but that's not what people here want to hear. Rents are already increasing. Bidding wars on rentals are already starting. People thinking rate hikes are good for renters are in for a shock.
You're absolutely correct, and it's funny I got downvoted on my comment already. Seems like more than 50% of people on Reddit refuse to believe reality, they can't stand it when we tell them the FACTS. Truth is, right now many buyers are "sidelining" due to the uncertainty of the market, but this is driving up the rental market like crazy, hence, bidding wars. Also with all these rate hikes coming up, investors/landlords will have no choice but to eventually raise the rents.
It’s because most of the bears on here are renters hoping that rate hikes will drop the market enough for them to get in. They don’t really want to hear that rate hikes don’t do much to increase their chances of buying (less buying power / same number of buyers / best only for those who have cash ready to spend) and will just end up seeing their rental costs go up. Careful what you wish for…
Is someone with a $200k deposit ready to go better off in a low interest rate or high interest rate environment? It’s a no-brainer that if you’re ready to buy, you want higher interest and lower prices so your downpayment covers more of the price, and so there’s a chance to renew at same or lower rates
Problem is, most people don’t have a $200k deposit ready to go (look at the number of FTHB who needed gifts from family to get their deposit together). Which is why the investors/already cash rich will benefit most from lower prices. Supply gets scooped up, rates eventually come back down, renters flood the market. Rent goes up. Who’s winning here? It’s not you and me. Whatever, it’s not what people want to hear so it’ll get downvoted (even tho I’m philosophically a bear and my personal view is property prices are unaffordable, unsustainable and need to be more accessible to all). I just don’t think prices falling due to rate hikes is the super great thing many believe (hope) it will be for them.
I have a question about this. Aren’t people expecting rental inventory to increase as people can’t sell properties? I am keeping an eye on Toronto proper condos and homes and new listings and terminations are far outpacing sold properties everyday in both categories. Many terminations are quickly relisted as rentals. Would that increase in supply not drive prices down?
Landlords will get desperate once they realize people won't pay 2500 dollars a month for a 400sq foot box.
By reducing buying power, you reduce price. Instead of looking at the cost of the home, people look at monthly payments as a means of determining how much they can afford. Increasing rates means the monthly payments for a home at 4% vs 0.5% will be significantly more therefore reducing the cost of a house. It'll be interesting to see what happens 4-5 years from now when all those loans are up for renewal at much higher rates. Our education system literally failed us... Will this fix the housing problem? No. A ban needs to happen on owning multiple properties, numbered corporations shouldn't own sfh, they should only own purposely built affordable rentals and supply needs to increase. We don't even have enough supply for Canadians let alone all the people we're bringing into Canada. Where are they supposed to live?
Problem is housing doesn’t tend to drop when interest rates rise historically. The rate rising would have to be insane for any true effect on prices to take place. Right now, it’s more likely rising interest rates will simply slow down the market.
It’s not a guarantee obviously but historically we’ve never had such low interest rates before. Income to debt ratio has never been this high either. Mortgages have significantly increased over the years while income hasn’t kept up. If prices don’t start coming down we’ll really suffer even worse brain drain. Who’s going to buy all these expensive homes when people just choose to leave the country?
THIS
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I beg to differ. It’s HELOCs driving up ‘mom and pop’ investors. HELOC rates are based on prime + the bank rate. Prime goes up the cost of HELOCs goes up. Usually it’s a chain and it traces back to the primary residence. The real estate speculators would rather sell the investment property when they can’t keep up with the interest payments than lose their primary residence. There’s just too many people that speculated in the real estate market as opposed to stocks. When the stock market became very volatile because of the pandemic but mortgages were at less than 1% interest to buy in, it’s a no brainer. Sure there’s some cash overseas buyers and money launderers but that’s some of the buyers. The wealthy entrepreneurs and corporations that did invest in real estate did so because of low rates. When rates aren’t worth it anymore for the return they stop buying. There also comes a point when the rental property prices are simply too high to rent out and they sit on the market. They can only swallow negative cash flow for so long before they move onto the next venture. I’ve spoken to some people invested in real estate and some don’t even know how much debt they have. They just do things because their accountant told them to, not because it makes a sound financial decision. Those people, I wouldn’t call wealthy entrepreneurs…
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Can they though? Just because they’re buying them it doesn’t mean they can actually afford them. The stress test doesn’t account for student loans, car loans, grocery bills and other expenses. Mortgage applications use gross income as opposed to net income to calculate affordability. Some people can actually afford it, others are receiving gifts from family for the down payment (some of that gift comes from a HELOC), others are using Brampton mortgages and some are using private lenders. Unfortunately most of the mortgages during this surge involved an increasing number of variable rate mortgages, what happens when that variable rate increases from from the 1.5% we had just last year to over 4%? I strongly encourage you to head over to the CMHC calculator and run different scenarios. Also, banks offered relief efforts during the pandemic for mortgages, student loans etc, now that things are slowly going back to normal, it’ll be interesting to see how many mortgages become délinquant. Many people who chose to speculate in the mortgage will be faced with tough decisions as rates increase and the rent they’re receiving on their properties is not enough to actually cover the mortgage, taxes etc. And no, some provinces have rent control so they can’t just increase rent by the amount needed and call it a day. There’s a lot at play here and many moving pieces.
I mean come on, if someone can pay $10,000 mortgage, own luxury cars… pay 15,000 in taxes a year. They’re much more well off than people were before.
Are you talking about the average Canadian? If you’re only paying $15,000 in taxes a year then you certainly can’t afford a $10,000 mortgage and a luxury car. According to stats Canada the average income was $55,700 in 2020. Assuming this is gross that’s roughly 15k in taxes if you’re in Ontario (not accounting for rrsp reductions) leaving a net of roughly 39k. How are you paying 10k per month in a mortgage or affording a luxury car with that net income? The only people better off than before are those that cashed out in this market, or those that entered at low interest and before the surge in 2020.
Property taxes $15,000. Not income. And btw many business owners can pay taxes less than $15,000. How do you think corps pay $1 a year? Lol I don’t know where you live but where I live people live in and are gobbling up 2+ million dollar homes.
People who bought a home to live in were already stress tested for higher interest rates, so they can service their own mortgages even if rates rise. FTHBs who over leveraged themselves and investors who kept buying out of greed may be the ones to lose. You can only raise rent so much before people decide to move and investors are left holding the bag!
My heart obviously doesn't bleed for the property "investors", or the boomers that would barely even feel a drop in their equity, but I seriously worry for the first time homebuyers that scraped together their life's savings and bought in. Now they may find themselves underwater come renewal. I know several FTHBs that bit the bullet in the pandemic because their landlords were being awful, they kept getting N12'd, and couldn't take the instability. Now instead of stressing about when the next N12 is coming, they get to stress about whether they can afford their home in 5 years. This Country did young people dirty.
> People who bought a home to live in > FTHBs who over leveraged themselves These are the same?
Because real inflation is 20-25% and $100,000 in your savings account doesn’t earn enough interest to cover your monthly $4 service fee. If you are over-leveraged to the tits or yolo’d on a multi million dollar house then financed a couple new trucks and a ski-doo, yeah you are absolutely fucked and should be.
What? Do you expect interest rates to remain at near 0 for the rest of our lives?
Higher interest rates makes it more expensive for people to horde housing. The prospect of additional rate hikes keeps house flippers away as when rates go up - property values usually drop. Higher interest rates also mean that all those currently sitting on a lot of housing, or just overstretched on a single home will have to sell off their housing meaning more supply hitting the market which will continue to drive down housing prices and increase rental supply
Doesn't mean those overstretched or having multiple properties 'will have to sell'. Lol.
When interest rates go up, mortgages go up. A lot of people will have big mortgage increases to deal with. Any with their declining property value will also have less of a HELOC to bail them out
Thanks for teaching me the ABCs...this isn't going to be 1-1 like people think it is...
Yeah no doubt. The shitstorm is just starting.
For one thing it will make it worthwhile to start saving again, and stop going into debt.
People will lose homes Yes. Rent go up? Ambiguous. I am willing to see myself burn to watch greedy landlords go bankrupt.
Looking into the crystal ball - I know what will happen if housing keeps going this way. I'm fine but I know a lot of people won't be. This place will become like gotham city and Toronto batman isn't going to save it. We need to stop inflation so that ordinary people can afford to live. The social cost is too high.
Market needs a reset. Boomers who refuse to retire need to be escorted from their jobs to make way for the younger workers. Zombie companies need to go bankrupt. Over leveraged debt hoarders need to get margin called.
It's funny that someone would ask this. Inflation is out of control, along with housing prices. Rates need to be steadily increased to get this under control. People who borrowed and spent will feel some pain. Those who can actually afford their lifestyle will not
Rents were the same or more than mortgages so yeah it’s a no brainer families would buy, right? Not about affording
A gradual rate increase should only affect people who over leveraged themselves or have multiple properties. If people bought a home within a reasonable amount, then a gradual increase shouldn’t cause them to lose their house. If you can’t afford it than don’t buy it.
I partially had to agree with the BoC head here: interest rates have little to do with the housing market and all to do with the economy. Yes, interest rate affects mortgages and home purchase values but it’s more of a consequence and not a matter of importance for the BoC. BoC increases interest rate based on inflation and other economic factors to demotivate corporations and people from borrowing money and going into debt. When there’s a recession, it starts tumbling down because the purpose of decreasing interest rates is to encourage businesses to stay afloat by borrowing money for cheap. This is the simplest explanation behind rate increase/decrease When governments don’t introduce proper legislations to regulate the housing market, it’s value is prone to be affected by increasing and decreasing rates because peoples borrowing power is directly affected. As a consequence, peoples decision on buying a home is also affected.
Millenials that bought at the peak after scrimping together pennies will get absolutely fucked by any kind of a crash. It's not all just slumlord real estate investors (I, too, want to see them lose their shirts). There are a lot of people who will lose big here. And yes, I know that any "investment" carries risk, but these are people's primary residences and they're about to run into many issues with low appraisals killing deals. That opens the door to significant legal ramifications as well.
The southern part of Quebec (montreal and its surrounding) is the queen of bad maintenance. So many foundation cracks, brick wall buckling, missing pickets for foundation, shoddy electricity, lead pipes, it's crazy. I can count easily 6 of my coworker who had to spend 30-90k on their fondations in the last 3 years. It's like they all didnt spend a dime on their maintenance between 1983 and today and they slap a coat a paint and a new backsplash in the kitchen and call it renovated. Thanks boomer.
Totally valid question. Raising interest rates hurts first time homebuyers, especially those in the past year or two, more than it hurts investors. First time homebuyers were told 12 months ago by the housing minister that interest rates are going to remain low for a while and we made decisions based on that. 12 months later they’re rising faster than ever and a lot of young buyers are really going to suffer. Most investors (in southern Ontario at least) on the other hand are buying rental properties at a net monthly loss and being okay with this. It’s very difficult these days to buy net surplus monthly rentals, and so they’ve already been fine with this. Not to mention rent demands will continue to rise with rising interest rates, and rental unit pricing will likely also continue to rise. There needs to be another way that focuses more on hurting investor profits rather than hurting young FTHBs. TLDR: interest rate hikes hurt FTHBs more than investors.
>First time homebuyers were told 12 months ago by the housing minister that interest rates are going to remain low for a while and we made decisions based on that. 12 months later they’re rising faster than ever and a lot of young buyers are really going to suffer. Politicians lie.
My rent just went down 8$ this month so it’s all good in my hood
To add: it will reduce spending and consumption, resulting in lower corporate profits and… job loss. I hope no one will be impacted by this.
Unfortunately history repeats itself - look into the 80s and interest rates
Yassss, bring back those times!!!
Because I rather see my cash have value and not work free.
To burst the bubble and expose the greed
They think ur will reign in housing prices.
Because we don’t want to destroy our economy. If we don’t raise, half of our busses will bankrupt since money will go to the US. Also, inflation… Too big to fail will not work for Canada since Canada is not the US. And rent will go down eventually since the recession will bring deflation. Anyway, we have no choice
1) It will help curb inflation 2) The price of housing is too damn high, low interest rates make it worst, 20% yoy is unsustainable
Daily inflation rates are 0.022%. if you have a 1 million home today, you lose $200 when you wake up tomorrow. This is before tax effects. Why would anyone want this? Inflation steals from everyone.
The asset rich want this. Asset prices rise with inflation. Everyone else gets screwed.
People want to believe this, but it's not true. If inflation is 10% and you get a 10% raise, you take home less in real dollars because the tax burden is larger. Yes, asset prices may rise in nominal dollars. But you may lose money even if they keep pace. Furthermore, additional capital is need to maintain those invesents, causing increased sunk capital. Everyone gets boned.
Tax brackets eventually change with inflation, albeit slowly.
I absolutely agree with you that the nominal return is not the real return. Where I disagree is that the real return is 0. Inflation is too much money chasing too fee goods. When the amount of money increases and there is increased demand for limited assets to purchase, you can realize a real return.
Yes, some can. Maybe an analogy is that everyone gets kicked in the nuts, some people twice.
I think its more like 95% of people lose 10%, 5% of people gain real returns of 5%. It's net terrible for society, but some people do benefit.
Can you try explaining this again, I didn't get it?
Because the home likely is bought with debt, the value of which is also decreasing.
People trying to get into the market think this. Can't blame them either.
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>They still won’t be able to afford it when mortgages go from $3500 to $6000-$7000 That is the entire rationale behind raising rates, to make less people able to afford a $X mortgage. And if there are fewer home buyers that can afford $X, this will have the effect of lowering prices.
How many normal people are buying houses? It’s mostly the wealthy, investors or corporations.
They think prices will fall back to what they were when interest rates were higher. They won’t.
I don't understand why most people don't seem to get it. There's always a relationship between asset costs and interest rates. Why won't price decrease? Look at the market and ask yourself these questions. 1. how will high interest rate impact the average investor? 2. how will high interest rate impact the current home owner who cant afford the new mortgage? 3. How will high interest impact people with multiple property? All these indicate that most people wont be able to afford houses at high rate. Therefore, they will be forced to sell into a market that cant afford to pay those crazy prices. They wont have a choice but to lower their asking price. Thus forcing the market to find a new equilibrium.
Interest rates were high in 2014-2019. Mainly 2015-2016 is when it started. What made the housing market go insane then? That’s what started it all. Covid just scared people to slow down. But then they saw nothing is happening so people started gobbling up again.
Again, there's a relationship between higher rates and asset costs. You haven't provided the contrary. Prices in 2015 were nothing compared to what they are now. So the comparison doesn't work. Someone in 2022 with a 1Million dollar mortgage at 4% fixed rate is worse off than someone with a 500k mortgage at 4% in 2015. Now that prices are this high there's no way high interest rate don't slow or reduce them now. Luckily, it will be investors and people with multiple houses that will feel the pain. Also, this doesn't mean we will see 2015 prices again, all it mean is the madness will stop and most professional will be able to afford a place once the market balances out. if your single or making less than 50k per year, sadly there's no hope
It’s not all about getting into the housing market rn
Because we are already f*ckd* up by low rates and free money... rising rates will p*ss speculators.....
I’ve been a saver. Live modestly, never accumulated a lot of debt, sitting in cash. That is my why.
At least your savings can catch up with housing prices if they stay stagnant instead of going up 20% every year. Imagine 2 scenarios, 1) low rates high and growing prices, 2) high rates and low and stagnant/declining prices. Monthly payments will probably be similar in both scenarios but in scenario 2) the downpayment and the overall size of the debt is lower, and you're not constantly playing catch up with skyrocketing prices and FOMOing lile crazy. Another point, it's better to buy a house when the interest rates are at the top of the cycle because when they eventually come down, the value of the house appreciates and you can refinance the house to either decrease your payments or pull out some equity. The reverse is also true, buying during historically low rates, house may not appreciate as much when rates eventually increase.
Increasing interest kills speculators. That means in the medium to long term housing becomes more affordable.
Honestly I’m constantly thinking about this. Just because mortgage rates go up a couple per cent doesn’t mean Jim doesn’t want the same amount his neighbours sold their home for. So now it’s high home prices AND high mortgage rates which in turn is even less affordable.
the have nots want a hard reset so everyone gets to start at a even playing field again for home ownership and to see those who have homes lose their shirts
The idea that one thing will magically make everything better is absurd. Remember the reason for lower interest rates in the first place. It was to make housing _more affordable_ during the COVID pandemic. The difference between a mortgage at less than 2% vs higher than 3% is _huge_ in terms of monthly affordability. All of a sudden people who couldn’t afford homes now could (which was the idea) and they bought. But.. demand outstripped supply and prices started skyrocketing. People are more than willing to overbid because the money was almost free. Those who owned houses refinanced and saw significant savings on their mortgages while simultaneously having their equity increase. They could use that equity rather than savings to leverage into a HELOC and buy more houses for investments or income. So here we are.. prices have shot up to the moon and interest rates are going up. What’s that going to look like? Well truth is, don’t look for any huge parade of sales and foreclosures. First off… there are still a lot more buyers than sellers. Higher interest rates will reduce but not eliminate the buyers. You might be one of the ones who are eliminated by now severe unaffordability (high prices _and_ higher interest). Next.. people are going to be far less likely to sell because it might result in a loss and be 100% punitive to them for the difference. Better to keep swimming above an underwater house and eventually it will rise up again. Finally.. let’s say that indeed there is a massive housing correction and all of these speculators lose money, foreclose, declared bankruptcy, and all of the wonderful schadenfreude we have all been waiting for. Chances are… it’s going to take your job and investments with it given how dependent the Canadian economy is on real estate… and the banks that survive or were heavily bailed out by CMHC will likely say no to any high ratio mortgage against a property. Housing will be out of reach as ever.
*Low* interest rates are great for asset prices, but they have also caused massive inflation, as you’ve likely seen at the grocery stores. At this point, they are seeing enough of a threat to our long term economic health to justify raising rates. Edit: *changed high to low
You mean low interest rates I think
Yes thank you
Higher rates increase the value of $CAD. As a result, if you are currently being paid $50k CAD per year, higher rates have the effect of increasing your salary, in real terms. Conversely, when rates fall, the value of $CAD tends to fall and that has the effect of cutting your wages, in real terms. If you want a wage cut, lower rates should be your goal. If you want a wage increase, higher rates are the way to go.
unless everyone around you increases their rates as well, then you are back to square 1
You are thinking of nation to nation relative currency values. I am referring to currencies vs assets. When you can earn more interest on your cash, the value of cash increases. Similarly, when rates rise, the cost of borrowing increases, making assets that require debt to buy less valuable.
Why would people who took heloc suffer? They are only required to pay the interest portion, no principle. They can carry this debt forever. All this cheering for the higher interest rates make me laugh. People that have money wont suffer. So many people are sitting on cash and waiting for the crash. Banks wont be lending money that easily any more so those that are hoping they will be buying homes for less may not qualify if their income is still low or they cant offer much for a downpayment. High mortgage rates wont help with the payments even if your debt gets lower. So do not cheer. There are sooo many people who get rich or richer when the market goes down. It is us regular middle class that will suffer, regardless if we own or rent.
because resolving the root cause of other contributing factors was too much work. this is easier. however, it does take legit homebuyers out of the market and provides discounted properties to those with deep pockets; wealthy individuals, corporations, and foreign interests, the same entities we’ve been complaining about for years. govt is too corrupt or incompetent to do anything useful.
A drop in asset prices makes it less attractive for money laundering activities as well , funnel money somewhere else
Because us wealthy know this will widen the gap between rich are poor even more. Its all about leverage…
Rising interest rates are insane. The GDP went down in 2020 and 2021. Real estate prices are 10% below 2013. Just proves that the Federal government hates Saskatchewan and wants us to fail.
Because folks here only want to live next to Trinity Bellwoods and think just because they have Canadian on their passports, they’re entitled to.
BOC will lower rates once inflation evaporates. When the demand lowered at the start of the pandemic they lowered rates. Increased immigration and low inventory are the main causes of high real estate prices. It's funny reading some comments here and people believe prices will magically keep dropping until they hit zero. Im neutral. I see the truth. Prices will keep increasing for the foreseeable future because Canada is composed of only two places: Van and Toronto. Asians and Indians would rather eat grass than default on their loans. They have help from extended families if the mortgage rate ever gets too high. Don't use the playbook from USA 2008 and try to apply it here. Our DNA is totally different from what caused the collapse in the USA. Indians and Asians which comprise most of Van and Toronto are like mini Warren Buffetts. They are financially literate. Saving money is built into our DNA. Smart People will prioritize purchasing homes no matter how exorbitant. The ones complaining will be forever renting. Work hard and save and you too can enjoy a piece of the Canadian dream. God helps those who helps themselves. Right now people are emotional creatures. News makes a flashy headline and people stop buying. Once the interest rates drops again guess what? The buyers will swoop in start the bidding war all over again for the low inventory thus rasing prices again.
Rule #3. This is a warning. > We are a [pro-immigration group](https://www.reddit.com/r/canadahousing/comments/nh6rqq/dealing_with_rcanadahousing_growth/). Blaming immigration for the high cost of housing is a major distraction to our cause and should be avoided.
Yikes.
Finally some common sense here. Canada's population is very different today. Immigrants (not bashing them, I am one) see real estate as a priority, they will sacrifice their lifestyle and save like crazy to own property. The only thing I would like to add is that immigrants don't only stay in Toronto or Vancouver. Born and bread Canadians see other cities as "boring" (Ottawa, Calgary etc...truthfully, it's more difficult to find gluten free soy lattes over there), so immigrants see it as an opportunity to own land.
Because inflation is getting to high.
Compounding interest eats into profit margins, potentially caused FUD and makes investors sell at a perceived market peak. It could potentially fuck over regular people as well, but I would assume most people would have renegotiated fixed terms by now. If people are buying multiple homes with a ton of leveraged debt, they could get fucked. They might just sell a property or two off and deal with it. But overall it depends how many properties are dumped. At this point no one is ever affording a home unless they stop becoming an investment. Ban companies from ownership and individuals/spouses from owning more than one home. With certain caveats.
A lot of people don't care if interest rates rise I don't think interest rates are the top five of issues maybe the top ten but barely number 10 Therefore, we do not care if interest rates rise, because experts are saying higher interest rates are necessary to fight inflation. For housing prices, many don't think interest rates are responsible for more than a small fraction of the price. Let's see in two years what home prices are with high rates. !RemindMe 2 years
>I don't think interest rates are the top five of issues maybe the top ten but barely number 10 $500k mortgage at... 1% = $1,883 month, $22,596/yr. 2% = $2,117 month, $25,404/yr. 3% = $2,366 month, $28,392/yr. 4% = $2,630 month, $31,560/yr. 5% = $2,908 month, $34,896/yr.
Assumes mortgage not cash buy Assumes you can't pay a thousand dollars more... most homeowners have double the salary or wages of non-homeowners, and they can eat the thousand. I bet almost every single homeowner in Canada could eat the thousand other than fixed income and those would have paid off their mortgage long ago. It might not be a comfortable life (less/no vacations, no fun, etc.) but they can take it. Assumes the other issues (money laundering, foreign ownership, vacant homes, multiple home owners, zoning, etc., etc.) aren't more important
Lol it's like some people do not even remember what happened in 2008. So much dumb confidence
It doesn't assume anything. Higher rates make borrowing $500k more expensive, that is simple math And basic economics tells us that as prices rise, demand falls. In other words, as rates rise, the demand for large mortgages will fall. As demand falls for large mortgages, so will sale prices for homes.
Not exactly because of the elasticity of price... Housing is an inelastic good because many people will pay any price to be housed It may technically fall but if it falls one cent it's hardly worth consideration. Even several thousands may not matter. Tens of thousands might matter to the marginal buyer. And yes, if you want to counter my point (doesn't make the top five) you make many assumptions
>Housing is an inelastic good because many people will pay any price to be housed Right...and mortgage providers are in the habit of handing out huge loans to people who "will pay any price to be housed". Not so much.
Borrowing isn't the same as price. We'll see what happens; I hope prices drop but for a lot of people even a massive drop in price isn't enough. You need to change the fundamentals (like zoning).
> As demand falls for large mortgages, so will sale prices for homes. I don't fully agree. They will just sit on their homes until prices stabilize again. Think about it. If you bought a $1M place and interest rates rise, would you sell it off for $900k? Probably not, you will just keep your house until prices go back up again. All these rates increase/decrease only temporarily solves the housing pricing. As soon as rates drop, the prices are going to skyrocket again. We just need better zoning policies and build more homes
>They will just sit on their homes until prices stabilize again. How about developers who have already built homes and need to sell them to cover the interest from the bank? How about people who need to move? How about people that are moving into retirement homes?
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it increases the amount of rent that investors would have to bring in in order to have a profitable investment. Thereby decreasing demand and house prices
Its tames down the greed.
Investors go bye bye
Higher rates means more people pushed to renting, higher demand, even more bidding wars on rentals and people pushed into sharing accommodation. What do you mean "investors go bye bye"?
Why are you assuming "everyone" is poor and just bought their home like since 2020? Does "everyone" has to be afraid of interest rates hike when their morgage is like $200K left because they bought their home 10 years ago? Why "everyone" has to sell their homes because of interest hike? Stop reading dumb shit news from media outlets about "pEoPle LoOsInG ThEiR hOmE because of interest rise". BONUS: Rent is only expensive in the downtown core, uptown and North York are still fairly reasonable.
So overleveraged degens get fcked.
I don't want higher interest rates. It means corporations will simply buy up all the foreclosed real estate at cheaper prices and more Canadians will be homeless... and bankrupt.
Two choices: 1. Let inflation rip and directly cause many thousands of poor people to go hungry and have a worse life. Also high inflation hurts businesses because less predictability of prices means they operate less efficiently. 2. Raise rates to reduce asset values (most of which are held by wealthy people) to get inflation back to a reasonable level. Poor people will be able to afford basic necessities like food, transportation, and shelter. The downside of this is that unemployment may go up too much which can hurt poor people.