Inflation in Canada has broken a 30-year record, everyone was expecting a raise in Interest Rates last week but the Bank of Canada still holds the rates to its lowest point.
But Why? Well, they don’t want to create panic, especially in Real Estate market. It will definitely go up slowly and Gradually which sometimes may not be the right thing to do. We will see why?
There is a big shortage of workforce in Canada since the COVID hit the world, Lot of people either left or didn’t travel to Canada which impacted the employment rate.
There is this paint store close to my home which is closed because they couldn’t find anyone to work there.
Just before COVID, there were so many workers coming to Canada but no work but now, there is so much work but no workers.
People are leaving their jobs and asking for a lot more money to work which is of course putting a lot of stress on production and prices of goods.
WHY BANK OF CANADA NEEDS TO RAISE INTEREST RATES?
Right now, Interest rates in Canada are at their lowest point, this means money is very cheap and businesses are taking advantage of this to borrow and spend more to expand. This is one of the reasons real estate prices doubled in at least 5 years or so.
Normally, Govt’s reduce the interest rate to grow their economy.
But at some point, people just start over borrowing and betting on Appreciation.
Once the GOVT decides to raise Interest rates, business stops spending money and that will mean layoffs and that will increase unemployment rate. People won’t be able to get a lot of money they are asking right now to work. This will bring down the salaries and cost of production. This will eventually bring down inflation. Currently, Inflation is 30 year high in Canada and the Bank of Canada is under immense pressure to raise the interest rates. They are already planning to do this slowly to raise the interest rate by 1% over one year. It is bound to happen, and it’s just a matter of time.
FUTURE OF REAL ESTATE IN CANADA
First, Impact of inflation is that the price of construction material has gone crazy, especially wood which pushes the construction and renovation cost much higher. Also it’s difficult to find construction workers as well and so labor and contractor costs have gone up drastically.
IMPACT OF RAISE IN INTEREST RATES
Normally, we expect house prices to go down as interest rates are rising because people need more money to buy real estate and their cost of owning a house also increases as their monthly payments are rising.
We have seen the interest rate fall by 1% slowly around 2017-2018, but the impact on real estate went crazy around that time, property prices went crazy for a little while and then came down sharply.
There is a reason for prices to go up with interest rates which is not what we are expecting. Lot of people feel pressure to buy and lock their mortgages for the next 5 years to lock the interest rate. Maybe the problem is how the Bank of Canada is increasing interest rates, they are doing 25 points at a time and which is putting pressure on people to get into real estate before it’s too late.
So, for 2022-23, we may see Real Estate prices can even go more up then sometime towards the mid or end of 2023, we may see prices keep sliding down. They way prices are going up, there must be a crash on the horizon but GOVT is doing everything to make it go slowly down but everything they are doing pushing the prices are even more up. What I see, great opportunities are going to come very soon in the real estate market, we will probably see a crash very soon in the coming years.