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Interest Rates and the Winnipeg Real Estate Market Winter 2023

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


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