June, 2023

The Plateau and The Prime

With 24.7% more sales this May over last May, the increase in buyer activity resulting in  multiple offers per property and with inflation moving from 4.3% to 4.4% The Bank of Canada responded by raising the prime lending rate.

This surprised many people in the banking and finance world and perhaps even the Governor of The Bank himself who said in his speech before the (link) Toronto Region Board of Trade on May 4th that we haven’t seen the full effect of the recent increases and he is cautious about over-correcting.  However, he also addresses the risk of allowing inflation to become entrenched and he forecasts the raise at 38.42 minutes in the interview.

The Bank expects the inflation rate to drop to 3% this summer (see minute 3:21 in his speech) but they don’t expect a drop to 2% until the end of 2024 and so they will keep up the pressure – possibly more increases. Previous speculation that the lending rate would come down before the end of 2023 seems unlikely to materialize.

In the next 45 days or so there will be some buyers who are determined to find their houses so they can lock in at their lower pre-approved rates.  Listings are still scarce, and buyers must confront low supply.  They will be aggressive in their purchasing goals. 

 For the past number of weeks, the showings and house prices have plateaued, with a dip in the first week of June.  Baby boomers have been supporting the increase in house prices by giving their adult children large sums for down-payments, however the amount they are able to give may be maxing out and with increased interest rates prices will be pushed down.   

A plateau in average house prices may have materialized. Pricing for a detached house in the 416 appears to be settling at just under $2M.  What will disrupt the plateau? Seismic activity. 

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