Hossack + Gray Real Estate – The Agency

Blog Post

Economic Update For Buyers and Sellers

Bank of Canada

  • The Bank of Canada raised the benchmark overnight rate to 3.25% this month. Over the past seven months, the overnight rate has moved from 0.25% to 3.25%.
  • We are expecting at least one more rate increase before the end of the year, likely at the end of October.

Current Economic Climate in Canada

  • The current economic climate is characterized by high inflation, historically low unemployment and significant job vacancies.
  • While supply chain issues will eventually subside, tight labour markets across the country are pushing up hourly wages, which is exerting inflationary pressure.

Inflation – Changing of the Consumer Price Index

  • The rate increases are intended to slow down purchasing power as inflation soared to 8% over the summer. The Bank of Canada has a targeted range of around 2% for inflation (grey area)
  • High inflation has been driven by the energy sector, travel and food prices.
  • This week the Bank of Canada reported inflation reducing to closer to 7%.
  • Economists are predicting we are over the peak and headed in a downward trend. It will take some time for inflation to get back to comfortable levels.

Outlook for Interest Rates

  • As inflation has started to decline, it is expected the next rate increase should be the final one for this cycle.
  • The Bank of Canada will likely plateau the rate at around 4% and hold for a year to two years.
  • We do not expect the central bank to start cutting rates until inflation drops to under 4%.

What Does this Mean for Buyers?

  • Economists predict interest rates to peak in late 2022 but remain constant for up to two years.
  • This will put downward pressure on housing prices as buying power in the market is reduced.
  • A good mortgage broker is very important during these market conditions. As is a good Realtor 😉

What Does this Mean for Sellers?

  • Home prices during the pandemic increased well above historic levels (circled area).
  • As inflation reduces, interest rates will begin to decline and home prices will increase again, likely at prepandemic levels.
  • The good news for sellers in the current market is the historically low levels of inventory have continued.
  • Low inventory is helping sellers move their homes, with adjusted expectations for days on market and pricing

In Conclusion

  • In the short term, we expect high interest rates to supress activity in the housing market, which should lead to softening of prices.
  • In the long term, rising interest rates will slow new development as projects become delayed, reducing new supply in the market. As we are moving into a period of above average population growth. In order to meet this population demand, this would require 20% more net housing completions than we have seen over the recent past. This will increase demand significantly.

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Victoria Realtors - Katherine Gray and Patrick Hossack

Contact Info

The Agency Address 

101-960 Yates St, Victoria, BC V8V 3M3

Patricks Phone: (778) 535-7972

Kate’s Phone: (250) 516-4563

Office Phone: (778) 265-5552