The home and condo resale market is proving to be an interesting place so far this year. Sales volume is way down when compared to last year or the year before that. However, prices are holding. Lets talk about 3 influences in the market that you need to be aware of.
First Prediction – Interest Rates
Interest rates will be coming down as the year matures.
The overreaching goal of the bank of Canada is to reduce the overnight rate as the year progresses.
The Bank of Canada has increased overnight interest rate several times since early last year from a record low of .25% last year to 4.5% in January 2023 according to TD Bank. This was to combat inflation across the economy that had crept up to 40-year record highs. According to the bank the January 23rd, 2023, interest rate was to be the last in the cycle.
However, according to a CBC news article I read on February 22nd the bank of Canada governor Tim Macklem recently stated after revealing the latest inflation figures that he may support a pause on the interest rate freeze. In other words, we could see more interest rate increases until inflation starts to climb back down from the general 5.9% inflation rate, (groceries are at 11.4 percent).
What has this meant for home buyers? The prime rates offered by banks has increased in line and in general a 1% increase in interest rates reduces a person’s buying power by about 10%.
Therefore, if someone is approved to purchase a home for $400,000 and an interest rate of 1% is applied, their lending ability is reduced to around $360,000. Conversely if the interest rate is reduced a person’s lending power goes up by 10%.
Second Prediction – Prices Will Go Up
To this point, interest rate increases have had little to no effect on home sales prices.
At the time of writing, single family homes are selling for 3% MORE than in 2021. Condo prices are stable.
I expect to see values go up especially at the lower more affordable end of the market as home buyers are forced to compete for less expensive homes.
Many potential home sellers are currently reluctant to give up their current low interest rate mortgages and buy another home with a higher interest rate attached.
Sellers appear to be staying out of the market at least so far.
If sellers stay out of the market in 2023 because they are reluctant to give up favorable interest rates on their existing mortgages, supply may stay tight all year.
As we approach the Spring market, home sellers that enter the market may experience very strong demand for their home.
Third Prediction – We Are Headed Toward a Seller’s Market
At the time of writing there was just under 2500 single family homes and just under 1500 condos for sale across the entire Edmonton market.
Based on current demand, that means there is less than 3 months of single family home supply and less than 4 months of condo supply.
In general, anything less than 4 months of supply is considered a ‘sellers’ market’.
There will be heavy pressure on prices. Sellers will have the leverage in negotiations and I predict prices will rise and perhaps very quickly. At least in the short term.
If interest rates come down sooner than anticipated and more home sellers enter the market, inventory concerns will ease, and prices could moderate and perhaps even fall.
About the author:
You can read more about the author of this blog by clicking this link - Stuart Neal, Broker, REALTOR® & Team Lead.
Our FIXED FEE home selling program gives clients proven results & affordability. To learn more call our Broker Owner & Team Lead Stuart Neal at: 780-760-2014 or visit our program page www.FixedFeeRealty.ca
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