Bank of Canada 0.75% September Rate Increase

Hi everyone, I’m James Garbutt. And I’m Denny Dumas. And this is the Garbutt Dumas Real Estate Podcast.

Denny: Well the ongoing story of 2022 is interest rates Monica. And seems like there’s no stopping in sight, right? The Bank of Canada announced another .75 increase in the overnight rate that results in the primary going up .75%. That results in your variable mortgage going up. If you have a static payment variable mortgage, you’re probably paying the same thing unless you’re getting close to that fringe point thing. What is that called?

Monica: Because you asked me I don’t know.

Denny: We’re gonna call it fringe points.

Monica: Fringe point. You heard it first here on the Garbutt + Dumas podcast.

Denny: Which basically means if your payment gets to 100% paying interest, the bank is going to ask you to increase your payment or put some chunk of money down into the principal or your variable rate mortgage payments go up every month. So now we’ve seen a 3% increase in the prime rate over the last seven months and potentially could go up again. We get the question all the time of like, is this the last one? When is this going to end? What is this going to do the housing market? And I think the honest answer for most of us is, is we have no clue. We can’t predict that.

Well we can tell you is what’s going on today. And we’ll kind of share a quick update of what we are seeing in the last couple of weeks since we’ve rounded the corner over the Labor Day long weekend. But interest rates are up. They may have another increase later this year. I think the next meeting is towards the end of October. So… to be determined.

Monica: Right. I don’t think that anyone was really surprised at the rate I mean, everyone knows that the rates are going back up. They were at an all time low. So we expect them to climb. I think that it’s a bit shocking how quickly they’ve decided to raise interest rates. I think it’s it seems very much like a rate like overreaction. I think probably pacing it a little bit better would be smarter. I know they said oh, we’re gonna front load it. We’re gonna really like nip this in the bud, that kind of thing. But it’s really, really dangerous when you have you know, families that are in committed financial situations, and it puts a lot of stress on people financially and it’s a matter of time before we start seeing people selling their homes prematurely to get out of mortgages, maybe even foreclosures by, by this spring. So I think it’s, it definitely needed to kind of regulate and hope, hopeful that our inflation rate percentage will go back down but it is a little dangerous how they’re doing it. It seems like from from where I’m sitting.

It’s, it’s one of those things where in the past we would hear things from all different professionals that we work with. And a lot of times some of the rumors that we hear are true a lot of times in the past they have been true, but we’re kind of hearing things all over the place. I’ve heard that they’re gonna raise it another, you know, 75 basis points next announcement. I’ve heard that they’re not, they’re going to raise it 25. You know, it’s all over the place. It’s really unpredictable. And all I can say is just like protect yourselves. Make sure you’re saving the money and, and put yourself in a position where you can take care of your mortgages.


Denny: It’s interesting, a couple of points. One is inflation has started coming down, which is I think it peaked in June of 2020 to 8.1% and the latest I’ve seen was 7.6 so it is coming down. So I guess what they are trying to achieve is working. The, I agree with you though how quickly they’ve increased them just makes me feel like there’s going to be this rebound effect and at some point whether it is next spring, summer 2024. At some point, there’s probably going to be a quick drop in interest rates back to like a steady number, which I’m going to guess is somewhere around three to 3.5. Right now Prime just went up from 4.7 to 5.25. That seems a little bit high, comparatively to the last decade.

So I would, I would think that like the comfortable number where we’re not getting these crazy bidding wars and people are not losing their homes is somewhere in that like mid three range so I could see it coming down quickly when it starts going down. I just don’t know if that’s gonna be in 2023 or not.

Monica: Yeah, it’s all very interesting. I mean, don’t you kind of wonder like, why did they wait so long to even raise the rate again? Like, where I was, the thought here? Yeah, it is what it is, it’s just an interesting process.

Denny: So many things that happened during the last two and a half years when COVID came, were peculiar. The amount of money that the government gave out to like people who didn’t need it, the interest rates going down to zero, essentially, to spark spending during the pandemic was kind of strange, like, there’s so many things that you just scratch your head about, and this is just another one of them right? They’re counteracting some bad decisions I think that happened in the last two and a half years and trying to just overcompensate for, for some mistakes it seems like but it just seems like they’re overcompensating with another mistake that is going to have another overcompensation in six months from now.

Monica: Yeah. Because realistically, when you change your rate like this, the amount that they’ve changed it, how much time needs to go by for them to see what that change did to affect the market?

Denny: More than 30 days.

Monica: More than 30 days. I can tell you that that is for sure. It’s more than 30 days. It’s got to be six months. Six months. Okay? That’s the new rule of government. It’s six months.

Denny: One banking meeting every six months. Ok? Monica and I will be at the next meeting, proposing this new legislation. Yeah.

Anyway, we’ll kind of share what’s I mean, we get the questions all the time of like, if they keep going up, our price is gonna keep going down. And I mean, the answer is: we have no clue. Like we can’t predict the future. We don’t know. The problem still remains is that there’s not enough supply and it’s actually quite interesting to see that the inventory in Greater Vancouver is still below the 10 year average. Even though we’ve had now five or six months of slowdown with interest rates climbing. So that just leads me to believe that like once this stabilizes, potentially rates come down a touch in the next year or two. We’re just going to have the same problem of low supply, like you would think in a slowdown where buyer activity is down, where sales volume is down quite a bit. That inventory would start to build up and that’s not not the case.

Monica: Yeah, so let’s talk a little bit about what we’ve seen in the market the last few weeks. I mean, since they’ve increased the interest rate we’ve been really busy. I mean for fall, not as busy as…

Denny: Totally. It’s been strange. August often is one of the slowest months of the year, and it was a slower month this year. In terms of sales volume. There’s very few new listings that came up, buyers were kind of frustrated and being like well, we have nothing to go see. And then as soon as Labor Day long weekend comes and goes usually that’s when we see a pretty big influx of activity and new listings. Buyers kind of get back out there. They’re back from vacations. Kids are back in school. They kind of get back into the routine. And it happened again, even though there was another point seven five increase. We’ve seen just on our handful of listings that the last two weeks have been much more active in terms of showings. Almost all of them have received an offer in the last couple of weeks.

Monica: Yeah, everything that’s been on the market has received offers, like a few new listings sold within a few days. Yeah, it’s been busy.

Denny: There’s a couple of listings that were very quiet through the summer that were on market for a couple months. And in the last seven days have got accepted offers at pretty good numbers. And then there was that one townhouse listing that we had in New West last week that got multiples in two days and sold at the highest number in the complex.

Monica: Record. Record sale prince for the complex. Even against like end units and really renovated units. It was, it was a surprise to us. I mean, we knew it was great. But we you know to be fair, we priced it with room to negotiate down because that was what we were seeing all summer like that was really unexpected.

Denny: That kind of leads me to believe that the good stuff, so this was a two bedroom townhouse. In a pretty good location in New West this leads be to believe that good stuff that is priced correctly that is in the more affordable range is still going to be quite active just because there’s not enough of it versus the multi-million dollar homes, the tear-down homes, the stuff that needs work. Those are going to need to be priced really conservatively in a word, that is not aggressive, because usually I word aggressively. Conservatively to I think get action this well. There’s more of those like tear down original condition 1940s, 50s homes for sale. There is not enough townhomes for families available like even built but available for sale.

Monica: Townhomes and move in ready. Low-end detached is just where it’s at. If you have a townhouse or detached it’s still selling and the interest rates haven’t slowed down this process. Hardly at all. No, we’re not having 60 showings and 15 offers but they’re selling quickly and you have to get out to see them right away when they list and if you like it, you need to send your offer and like that’s just that is what it is. You do have time right now to do your due diligence. You do have you know a few days to look at it usually. But there has been properties that my clients have liked. Detached in the 1.4 to 1.6 range that have sold with zero days on market, like it listed. This one property was awesome listed and sold full price that day. So you do have to kind of take the fall market seriously and the interest rates don’t seem to be affecting it which goes right back to what we’ve said so many times is: the Vancouver real estate market does not have enough property. There aren’t enough homes to go around. So it creates this very robust, very resilient market that you can’t fight with interest rates, like people still need homes. It just changes the prices a little bit.


Denny: But you’re saying with a little bit of a slower fall. The good properties are still gonna sell. Buyers have more time to do due diligence. Subjects are in offers. So what you’re saying is you’re really excited for this cooling off period.


Monica: You know what though? What happens in markets like this because sellers are smart in BC. Sellers in Vancouver are smart and these homes are investments for them. They look forward to their retirement like cashing out, though sellers take a lot of care. It’s not, it’s not like other markets around the world. It’s not like other markets even in North America. They will hold on to their property for three years and wait for the right market and then sell. So what happens in markets like this is there’s just garbage on the market. There’s nothing on the market except for things that people have to sell quickly. And, and that’s what kind of creates these little micro competitive markets, basically because there’s just nothing available.

Denny: It’s a good point. I think a lot of consumers and a lot of established Realtors understand that these downturns are pretty short lived. And so a lot of advice to a lot of clients that we have conversations with is: do you need to move right now? If you’re up sizing great opportunity, let’s do it. It just might be a bit of a challenge to move that two bedroom condo or you know whatever you’re selling versus the downsize or who’s who’s like been thinking about it, not necessarily sure. The advice is hang on for a year or two. Let’s reconvene in the spring and see what the market is like there but you may be giving up 200 to $400,000 selling this fall versus waiting 12 to 18 months. And a lot of those types of people are like “Sounds good. We’ll talk to you next year.”

Monica: Yeah. It’ll be interesting to see what happens in a month when the interest rate goes up again. Like what? Enough’s enough right? Like what’s going to be the breaking point for the market in Vancouver. I really don’t know.


Denny: I don’t think anyone does.