I’ve given predictions here already, and historical data.  But there are still many questions that come up when discussing interest rates that I would like to address.  Keeping in mind that I am a Realtor that sees the benefits of real estate on a daily basis - this blog will obviously be a bit slanted to that end.  I hope you can forgive me!

My feelings on real estate, regardless of high or low interest rates, remain unchanged. You will NEVER convince me that real estate is a bad investment, so long as you can comfortably make the payments on your mortgage. 

There are a few reasons for this.

1. People buy houses because of lifestyle changes, NOT because of interest rates.

I should preface this by saying most people. Some investors, do buy and hold properties based purely on the economics, but they are not the norm. Remember, people buy and sell houses for life changes, which can be characterized with the big D’s: Diamonds, Diapers, Diplomas/Degrees, Death, Difficulties, Divorce, Dogs, Downsizing. Sure, an interest rate change could have people delay their decision for a little while, but at the end of the day, if their current house no longer works for them, they tend to accept the pain of a higher interest rate and move forward.

2. Expectations Adjust

Statistical fact: In 1971, the interest rate for a mortgage was 7.33%.  If you had waited for this interest rate to go down before buying a home, you wouldn’t have purchased a home until 1993.  Can you imagine waiting 22 years for rates to go down? The average home price in Winnipeg, 22 years ago was $104,202.  Now, we are reporting an average selling price in late 2023 of $369,325.  A 254% increase in home values.  I assure you, that very few individuals decided to wait from 1971 until 1993 to buy. Despite the scary high rates of the time (particularly in the 80’s and 90’s), people got used to the rates and would ultimately move, based on their personal situation. Everyone's adjustment period is different, some adjust in a matter of days, others take a couple of years to regain their confidence - but once that new normal has set in, we see people taking action again regardless of interest rates.

3. History is the best Predictor

Similar to how we can look to the 80’s and 90’s as rates were rocketing upwards, we can also look at what is a perceived “acceptable interest rate” over time.  That number actually hovers around 6-8%.  We have had strong, Seller’s markets here in Winnipeg (and Canada) when those rates were hovering right in that range.

4. The law of economics

Supply and demand – the two drivers for both price and time. We continue to see positive population growth in Manitoba.  However, looking at housing starts in more recent months indicates that we are not keeping up with the supply necessary, to meet this demand. While the Federal Government aims to level out immigration targets in 2026, we are still far behind the required level of housing starts to hit current targets.

5. Timing is everything!

This headline is a bit misleading, and for that I do apologize.  It may appear that I think you can time the market. But that is not what I mean at all.  I sell real estate day in and day out.  I can tell you there are deals to be had in any market.  BUT you can NEVER time when the perfect time is to buy or sell a property.  Rather, look at time in the market vs. time on the market.  Anytime you are buying Real Estate, it should truly be viewed as a long-term investment.  If you came here to learn about flips, I apologize.  That is not my wheelhouse nor will it ever be.  Yes, I buy properties and renovate them to improve their value.  However, I keep those properties as rentals.  I plan to hold them for the long-term.

6. People will always get creative

If somebody truly desires to get a home, but it’s not an option via conventional methods – they get creative.  We are seeing more house hacks (owners living in a portion of a home and renting out another to offset their costs), we are seeing more “Tenants in Common” ownership arrangements – so perhaps not a husband and wife buying a home together but rather friends, that then both own portions of the home. I’ve even learned recently of some investment companies that are “pairing” buyers with one another to allow them to buy homes together.  I’ve also experienced people getting side hustles to make the numbers work. Let’s remember that owning a home is a huge dream and motivating factor for many.

7. Adjusting expectations

Akin to getting creative, we are also seeing people adjusting their expectations. Perhaps they are okay with a bit less house than they originally planned, and that’s okay too.  At least then you are in the market and properly hedged against market fluctuations.

8. Understanding Micro Markets

Winnipeg is a relatively small City.  But even so, there are micro markets within it.  There are areas that are more heavily impacted during market downturns or high-interest rate environments.  Then there are areas that are completely unaffected.  Knowing the market and it’s sensitivities, is key!

9. The Rental Argument

If you’ve seen much of my other work, you will know I often say “You pay a mortgage either way.  Would you rather it be yours, or your landlords?”.  But let’s also look at this from the perspective of a landlord – when rates are higher, we do see rents increase as landlords attempt to cover their expenses.  I’ve also noticed, that vacancy rates are very low in Winnipeg.  You are going to pay those rates one way or another (unless you have parents that let you move in…)

10. This is a Season

Just as the historically and unprecedented low rates of 2020 were there for a season, so too, are the higher rates. This is simply a chapter of the interest rate changes and does not mean you are trapped in this particular situation for forever.  If your concern is that a home might decrease in value in Winnipeg, and that is what is holding you back, look again at history. Over 50 years of data, Winnipeg values have gone up every year except for 3.  The 3 years it didn’t go up were 1982 (Average price went from $55,231 to $53,994), then 1990 (Average price went from 87,021 to $85,018), then 1995 (Average price went from $89,352 to $87,387).  In the worst year, we are talking about a 2.3% decrease. However, a strong rebound followed the next year – including in 1983 when property values increased by 8%... far making up for the decline. However, had you have panicked sold or elected to wait until interest rates came down in 1982… you would have lost those gains.

11. Cost of Action vs. Inaction

Which brings me to my next point.  There is always a cost of action, but there is also a cost of inaction.  We need to look not only at the financial needs, but at all needs such as mental, and psychological costs involved with taking action or not taking action.  There is no right or wrong answer for all.  This is a case-by-case analysis.

At the end of the day, the focus should always be on what is best for you and your situation.  However, what I will caution you on is not taking action simply because you are scared of what you hear on the news about the market or the current interest rates. Every market is local, and every family is unique.  Get the information you need from your lender, from your Realtor, and set yourself up for success – when the time is right!

#AgentJen

Jennifer Queen

Phone: (204) 797-7945
Email: Jennifer@JenniferQueen.com

At the time of writing this, we are at the eve of the next Interest Rate Announcement. I’ve been asked to comment a fair bit on the Winnipeg market, and where I think things are headed. The underlying concern behind every question I seem to receive, is the impact that interest rates are having on affordability.

My Prediction for Tomorrow: RATES HOLD. It would appear that the target inflation rates are on track for 2024.

The Bank of Canada has a few goals when we see policies as aggressive as we have this year. Namely:

• Inflation reduction
• Creating the appearance of instability and uncertainty, so consumers slow their spending.
• Higher debt repayments reducing discretionary spending power
• The feeling of "doom" tomorrow - so we hold onto our money today
• Based on the conversations I have been having, I would say it feels certain that the market is feeling just that!

The largest concern is over interest rates. And I get it. According to Royal LePage, 3.4 million Canadians plan to renegotiate their mortgages in the next 14 months – and inevitably, most of them will be at higher rates. A recent poll also revealed that nearly 75% of homeowners are anxious about these upcoming changes. First, interest rates are higher than we have seen in the last decade – and I get that is scary. They have also jumped at a more aggressive pace than we have previously seen. Also scary. BUT, we have to remember WHY…. Anytime you see a period in which the Government begins printing money as they did during the pandemic, there is more money in the market to play with. As a result, spending increases, prices go up. The low interest rates made spending, particularly on housing, incredibly popular. There was now more cash in the market, low interest rates, and many behavioural shifts too as a result of new lifestyles brought on by a pandemic (working from home, needing a home gym, not needing to be as close to the office, etc.).

Home prices increased (a huge contributor to GDP) and inflation increased. The pandemic was unprecedented, but periods of high inflation were not – and the government did just as it should – it started to increase interest rates to slow down spending and get inflation to a more manageable level. So, we went from a target overnight rate of 1.25% in March of 2020 to a target overnight rate of 5% in July of 2023. There is no denying that this was a HUGE increase, and those with variable rate mortgages started to feel the crunch. There is also no denying that MANY people elected to lock in for fixed mortgages when the rates hit new lows in 2020, and many of those renewals will be coming up in 2025. Statistically speaking, Canadians like the security of fixed-rate mortgages with nearly 74% electing for one and 49% electing for 5-year terms. This was true even before these historically low interest rates of 2020. So yes, things are going to change, but I do want to highlight a few things:

• History gives us a great deal of context, when we look to it and beyond what has happened over the last 3(ish) years. For instance, if you look at a history of 50 years of interest rates, did you know that you are actually coming out ahead in Canada, if your variable rate mortgage is below 6.8 percent or your five-year, fixed mortgage is below 8.6 percent? That is an historical average, taken over 50 years. In theory, anytime we are obtaining mortgages for less than 6%, we are doing okay.
• NOW, not the end of your renewal term, is where you need to start looking at the numbers. Run the numbers now. Remember there will be principal paydown to take into account so the amount you will be mortgaging SHOULD be less than what you started with. Discuss with your lender what the payments will look like at current rates. My advice – if they’re going up, it isn’t a bad idea to get used to the idea now and feel if it’s comfortable for you. Many mortgage policies will allow you to pay off up to 20% of the principal every year, so try paying that higher rate between now and your formal renewal. Not only are you paying down your mortgage faster, you’re getting a sense of how comfortable those mortgage payments are for you and your lifestyle!
• There are other options, too beyond just selling your home. Twenty-four percent of Canadians plan to extend their amortization period.
• Some have said they plan to switch lenders – approximately 23%, but keep in mind that if you do so you have to requalify for the stress test.
• Some may end up downsizing, and that’s okay too. You need to do what is comfortable for you.
• Some will get creative. Perhaps take on a tenant to help offset costs
• But let’s look at the flip-side of the coin. When interest rates were lower, buyers flood the market. Even a small decline in interest rates starts to increase buyer confidence. Which means, bidding wars, low inventory, and more. In my opinion, I would always prefer to buy in a market when nobody else is buying. Those investments are the ones that have performed the best for me, long term.
• Rents have also been increasing in Winnipeg, and fairly substantially. Vacancy rates are low so this market also remains competitive.
• Stress tests were instituted in 2016 for just this reason. To ensure that there is buffer in those mortgage rates.
• Keep in mind that money was being given to us, for nearly free. When, in history, have we been able to borrow money at rates far below inflation…Many economists are seeing that we will never see the rates of 2020 again (I’ll never say never, but I agree it won’t be anytime soon).

On the Winnipeg market in general:

Winnipeg maintains its status as a stable yet predictable real estate market. While we might not have the flashy headlines of some other cities, our market consistently chugs along, usually on an upward trajectory.

For the past two decades, Winnipeg has been undeniably characterized as a Seller's Market. Since 2004, we've consistently witnessed remarkably high absorption rates, even as interest rates began their ascent in 2022. In August 2023, MLS sales recorded a 2% increase compared to the previous year and a concurrent 2% rise from July 2023. With the recent announcement by the Bank of Canada to maintain the Overnight Rate, there's every reason to believe that this upward trajectory will persist.

As vacancy rates have declined, they've exerted upward pressure on average rents, pushing them above the national average. Interestingly, while average rents have climbed, the average sales price for a residential detached home in Winnipeg remains approximately half of the national average. Consequently, the allure of buying in Winnipeg has grown significantly, appealing to both local buyers and out-of-province investors.

Our condominium market was the one exception to the upward trending market over the last decade. It experienced either declines or nearly stagnant sales for several years. However, we are now seeing renewed strength and nearly twice the volume of sell-through that we experienced pre-pandemic. Sales prices have surged by 5% this year, standing 10% above the five-year average. As the pandemic continues to wind down, I anticipate this resurgence will continue, marking an exciting time for condominium owners who have longed for gains in their equity, akin to their counterparts in the residential market.

A major driver in the Winnipeg market is also positive net migration, which we have continued to see in 2023 and those numbers plan to increase 2024-2026 according to the most recent Canada Immigration Levels Plan. Combine this with the lift of the Foreign Buyer Ban in 2025, and the market is likely going to remain on the long-standing upward trajectory.

And IF the market were to experience a year of decline it has in the past – the market has always surpassed that decline in the subsequent year. If history is any predictor of future behaviour, those that can hold longterm will be just fine.

Source: https://www.gov.mb.ca/jec/lmi/outlook/index.html

Source: https://financialpost.com/news/3-4-million-canadians-renew-mortgages-2025

#AgentJen

Jennifer Queen

Phone: (204) 797-7945

Email: Jennifer@JenniferQueen.com