What’s up, guys!? Welcome all HOMIE’s to The Truth About Real Estate Podcast. I'm your host and preferred real estate advisor, David Elliott coming to you from Toronto, Canada and I am always delivering you the truth about real estate. Today is Episode 6 - Rates Down Means Values Up? Not So Fast. and we're going to look at a topic that's been heard across this country for months and months and months within the real estate world. And that is the anticipation of a market surge following the first rate drop from the Bank of Canada. But is this optimism warranted? Let's explore further. Before we start, this is a quick disclaimer for you. While we might chat about all sorts of topics: finances, mortgages, politics, business, etc. it's crucial to note that the content shared is for informational and entertainment purposes only. Before making any significant decisions, consult with a professional in the respective field. Now that we've got that covered, let's jump into today's episode! Thanks for being here, and as always, happy listening! So, if you haven’t been living under a rock, have any slight interest in real estate, and or have heard about rate drops for a while now, then you know that any realtor within an arms length of you has told you the all too famous (and stale) phrase: “when rates come down, values will shoot up.” You’ve heard it, I’ve heard it, we’ve all heard it. And while lower interest rates can indeed have a significant impact on buyer behavior, there are several factors at play that suggest we may not see the expected outcome as immediately as many are predicting. Let me give you an example of how I see this first hand. I had a recent experience with some clients, first-time homebuyers, and they came to me to get the ball rolling with helping them purchase ther own place. Despite securing a decent variable interest rate, they quickly realized that the steady and strong prices in our market were beyond their budget for what they wanted. It was a stark reminder that even the under average/attractive rates (in today’s landscape) it still sobered them up to the fact that they coundn’t afford this type of home. And we’re talking entry level for many first time home buyers in the GTA. This leads me into Reason 1 of 5 I have for you that have me thinking values aren’t going to go to the moon after the first rate cut coming up sometime this year: Reason 1: High Prices Now, let's dissect the first reason why I'm skeptical of an imminent market surge: high prices. Across many markets, we've witnessed home prices skyrocketing to record highs, driven by a combination of factors such as low rates, limited inventory and high demand. But what happens when prices become out of reach for the average buyer, regardless of how low interest rates may come down? What happens if there is too much inventory when rates come down a bit? To better understand this phenomenon, let's take a closer look at the dynamics of supply and demand in Toronto. Despite many believing rates will come down in June, buyers aren’t biting…..yet. Yet. Even after a drop in prices over the last year or so, prices are still up from their pre pandy days and have levelled off at unaffordable values. Salaries have not gone up much on average so the prices on houses and condos still remains unaffordable for most. As I was looking at the numbers that just dropped, a couple of things stood out to me: 1. In April 2024, 7,114 home sales were reported, transactions were down 5.0% compared to the previous year, and 2. The 16,941 new listings in April were a 47.2% increase over last April. Less transactions, more inventory. Hmm. Reason 2: Affordability Concerns Building upon that point, affordability remains a pressing concern for many would-be homeowners. While lower interest rates theoretically would make borrowing more affordable, they don't address the underlying issue of stagnant wages and increasing living costs. Affordability is a multifaceted issue that goes beyond interest rates alone. While lower rates can certainly make homeownership more accessible for some buyers, they may not be sufficient to address broader affordability challenges, such as stagnant wage growth and rising living expenses. People have other focuses these days – mainly how they can feed their families. Reason 3: Economic Uncertainty Ah, yes, economic uncertainty—a topic that's been dominating headlines and influencing consumer behavior. Despite the prospect of lower interest rates, uncertainties surrounding job security and future income prospects can significantly impact individuals' willingness to make long-term financial commitments such as purchasing a home. Let's take a moment to analyze the current economic landscape and its potential implications for the real estate market. According to many industry insiders and publications, Canadian economy may not see much growth in 2024 with the ...
