TIFF, THE BOC AND REAL ESTATE

by Shawn Lackie

When Tiff Macklem at The Bank of Canada (BOC) announced the latest 25% rate cut on July 24th, there was a sigh of relief—not a big sigh, but a sigh nonetheless. It marked the second straight rate cut following a string of 10 increases since March 2022. So, what does that mean to the consumer?

Well, for one thing, if your mortgage is coming due for renewal, you will now be paying less. If you bought and were pre-approved at a certain rate, you, too, should get a break. It's not a huge one, but every bit counts in the world of compound interest.

Speaking of which, a trip back in time could be interesting. My parents sold their first home in Byron, Ontario, in 1967 after 13 years of living there. Purchase/Sale price? $15,900. REALLY! That would only qualify as a deposit on many of today's deals. The buyer could assume the existing mortgage at 5 1/4%, which would be done in January 1975. Their monthly PIT payment was $87. Back in the day, you had both a fixed rate AND a fixed term, so your long-term planning was easier.

Fast-forward to 1980, when interest rates spiralled out of control. People were paying in the high teens for interest. One of my friends at CBC walked into the bank, dropped his house key off on the bank manager's desk, and said, "You can have it." The rate had gone to 22%.

In 2008, the Real Estate economy crashed in the U.S., largely thanks to the lenders making bad decisions. They were qualifying buyers who had no right to be in the game. Canada was largely unaffected due to the stringent ways of our banks, but the business did flatline for a while.

Then came the pandemic, and the big rate drop wreaked havoc in all corners of the business. The real estate market became a heated seller's market. Here's the routine: Put up a sign. Hold a date for offers. Look at offers and accept the most bloated one. The seller is happy. The seller's agent is happy. The buyer is relieved because they finally won a bidding war. The buyer's agent is relieved because they just went through this process almost 20 times to get their client a home.

Now, fast forward to 2023 with a whole bunch of rate increases. Time to renew that mortgage which you got for under 2%. Except now it's over 6%. Big ouch there. But with some common sense and help from the BOC we should move to a more reasonable rate. In the 4-5% range which is almost similar to what my parents were paying 70 years ago.

Like I have always said the business of Real Estate goes in cycles.

The main idea behind this column is to answer your questions on the goings on in real estate. If you have a question, feel free to send it to slackie14@hotmail.com. If your question is a good one, I will include it in a future column to share with all.