As expected, the Bank of Canada raised its key rate another 0.5% today, October 26, and is expected to further slow local real estate markets.
“With every increase comes more unhappiness and sadness,” Terese Cairns, a business broker at Faith Wilson/Christie’s International Real Estate, told iNFOnews.ca. “We have people freaking out about it, even though it’s not the end of the world. A lot of people have witnessed much higher interest rates.
In the 1980s, mortgage rates reached just over 20%.
The Bank of Canada’s key rate is now 3.75%, but that brings five-year variable mortgage rates to nearly 6%, the highest since 2008, Cairns said.
“They (the buyers) say, ‘Oh my god, things are going up. We can’t qualify now,’ she said. “The hardest part is qualifying.
Those who might still be able to take out a mortgage worry that when it comes up for renewal in five years, rates will be near these all-time highs, so they’re waiting until rates start falling again.
This is unlikely to happen for some time.
The Bank of Canada’s interest rate strategy aims to fight inflation and bring it back to its target of 2% per year. It fell to 6.9% from 8.1% earlier in the year, but the bank predicts that it will only reach 3% by the end of next year and that will have to wait until the end of 2024 to reach 2%.
Meanwhile, interest rates are expected to rise another 0.25% before the end of this year.
“Buyers say they have to wait to see a downturn to act,” Cairns said. “That slowdown won’t happen, I think, until late 2023.”
At the same time, house prices continue to remain higher than a year ago and will need to come down about 30% from their spring peak, she said.
Cairns specializes in commercial property.
“Business-wise, it’s a disaster because no one wants to do anything,” she said. “Even developers who have money to buy properties – they want to get the most out of it and they need construction finance if they want to build anything. They are looking at 6% or 7% construction financing. With prices going down, with downward pressure on prices, it will be difficult for them to see (profit) margins.”
She had a number of potential commercial property sales underway in the spring, but buyers have now pulled out.
They are waiting for good buying opportunities.
“Nobody wants to pay retail price right now because they think they can buy something cheap,” Cairns said. “They’re like sharks that can smell blood in the ocean 10 miles away. They think some of these guys won’t be able to do some of these deals and we’re going to have foreclosures and we’re going to do very great deals because people are going to get in trouble.”
It is particularly difficult these days to obtain financing for hotels.
While this industry recovered well from COVID last summer, there are concerns about increased COVID impacts this winter and another potential downturn.
“Banks are not happy with them right now,” Cairns said. “They don’t lend. They used to lend only against the value of the property, but now they won’t. Now it’s a combination of income and property value.
That being said, two hotels planned at or near Kelowna airport are likely to go ahead as they cater to business travelers and other travelers, so they have a good clientele, Cairns said. .
Likewise, the proposed Westcorp Hotel could be a safe bet given that it has the unique and necessary advantage of being a luxury hotel on the waterfront in downtown Kelowna, she said. .
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