Updated: Aug 24, 2021
"Hyperinflation, prices are going to go higher,"..."no, there’s going to be a correction, rates are going to go up,"..."NO it’s going to stay the same"….So many opinions out there, but from what I'm seeing working front line as a mortgage broker, here’s my opinion on Vancouver’s real estate prices and interest rates for the next 12 months!
So let’s start off with real estate prices.
We had a major world-wide lock down around March to April of 2020 and starting June of 2020, people saw that rates are at record lows and many buyers wanted to take advantage of that by selling their existing home and upgrading to a bigger home. We had a few months of that and around October 2020, first-time home buyers came into the market because they’re realizing the money they pay on a new mortgage is actually the same or less than what they’re paying in rent. And here we are now, summer of 2021, a little over one year since all of this happened. What’s my prediction? As long as the Bank of Canada doesn’t reduce rates, home prices will continue to go up! On many files that I’ve worked on, people were paying 20% - even 40% more than the 2021 BC Assessment. That’s crazy! The reason is because rates were low, there were lots of buyers and with Covid, and not many people wanted to list their place. But now that Covid restrictions are more relaxed, we will see more inventory in the market. However, there are many buyers out there and it will continue to be a seller’s market. The Bank of Canada said they won’t be increasing rates until the second half of 2022. So with the price increasing so much within one year already, I can’t imagine what it’ll be like with another year of low rates. Prices will continue to rise, maybe not as steep because of the relaxed Covid restrictions, but with rates at around 1.5%, they're still pretty much borrowing free money and people will be taking advantage of that.
And how about the interest rate forecast? Not much of a forecast because the Bank of Canada already said they will not touch the rate until the second half of 2022. But people are concerned about how quickly it’ll increase because of hyperinflation. The truth is, the Bank of Canada can talk all they want and think they’re the ones controlling the Canadian economy, but it's heavily dependant on what the US does south of the border. The Fed Reserve says they won’t touch the rate until 2023 so do you really think Canada will start increasing quicker than the US? I don’t think so. Every time Canada increases rates, it’s hurting the economy. And if the US doesn’t keep up with us, the Canadian dollar increases resulting in a double whammy...a slow down in the economy because of the rate AND now our dollar is high and the international market doesn’t want to buy from us. So yes, rate increase is necessary but the rate of it will depend on the US and so far, they're very comfortable with inflation increasing and rates staying low longer.
But what about HYPERINFLATION??! That’s the talk of the town now. Because of hyperinflation, everything is going to crash. Rates will go up, people can’t afford their mortgage anymore and people will just sell sell sell! I don’t think that’s going to happen. Yes, rates will go up but remember, that’s why there’s a stress test. As of right now, it’s currently at 5.25%. That means, people are being qualified as if their rate is actually 5.25%. This is prudent mortgage underwriting to ensure that Canadians can afford payments if rates are higher. I know lots of people who are very concerned are keeping their money in cash. They’re just afraid to invest because of hyperinflation and the whole economy will crumble. I don’t think that’s a wise move. Hyperinflation means your money will lose purchasing value at a higher rate. So if you’re keeping your savings in cash, it’s literally declining in value even though the amount of cash stays the same. What would be a good idea is to put that money in assets that will keep up with inflation such as real estate, stocks...heck, put it in bitcoin 'cause inflation is one driving factor causing it to appreciate so much. You need to get your cash working for you to keep up with rising prices.
And there you go! I just shared with you my predictions of Vancouver’s real estate prices and interest rates for 2022. What do you think? Do you agree or disagree? What’s your prediction? Please share them with me in the comments below!