Inflation numbers are in – Canada's inflation rate ROSE 4.0% in August (from 3.3% in July) driven by higher gasoline prices. Not only did the figures surpass the Bank of Canada targeted range, it also surpassed economist expectations of 3.8%. YIKES!
Recall, the Bank of Canada has a targeted range for inflation of 1–3%, and this most recent data puts pressure on the BoC to increase rates yet again come October 25th (after raising rates TEN times since March of last year..).
Hopefully you've been following along and have locked in mortgage rates – there is a high likelihood they will increase even further over the next month, if not already.
What does this mean for home prices? For home builders, this is not welcomed news. Construction projects are heavily financed, and given the rising cost of borrowing (and also carrying costs), we'll likely see even more restricted supply of new product and higher prices (cost pass-through).
For the resale market, sellers who aren't prepared for their next purchase (i.e., locking in rates) will have to qualify at an even higher threshold now, and may not think about selling, again restricting supply. Buyers will have to deal with what inventory is available, and as we head into the cooler winter months, we are expecting a seasonal drop in inventory as well. Similar story on renovation costs, with higher financing costs to produce raw products, prices are bound to increase further.
Here's a graph showing first the influence of rate cuts during the pandemic for the Calgary housing market (across all residential property types), and following, the influence of rate hikes from early 2022 onwards.
With the ratio of sales to new listings ratio at 5-year highs, it is difficult to assume prices may come down anytime soon. If the economy tanks and BoC has to cut rates – just take a look at what happened when rates were reduced back in 2020/21.
The key point here is to make sure you work with a lender / mortgage broker to get rates locked-in if you're thinking about a move over the next few months. Weigh the pros and cons for yourself of being over prepared vs. underprepared.