Wednesday, 17 May 2023
Inflation vs housing prices.
Let’s begin by acknowledging that if you don’t understand how and why inflation affects housing prices, you are not alone. It’s quite simple: the government’s target inflation rate is 2%. When the inflation rate is low, interest rates are low, and with low interest rates come a lot of people who can afford to buy a home. This was evident during a very long period of time from about 2016-2022 when rates were under 4%. Real estate is based on supply and demand so...if there a lot of people who want to buy a home, but there aren’t enough homes to buy, that’s when we start to see multiple offers and property values increase. It’s the same premise when you think about a hot toy a Christmas time. I use the Tickle me Elmo analogy a lot. Everyone wanted one that Christmas of 1996, which increased the price to hundreds of dollars-some were selling for over $1000! For a toy that had a suggested manufacturers price of about $30.00!? It was insane, but that’s supply and demand. Homes are no different.
The opposite is true. When the inflation rate is high, the government begins to raise interest rates in an effort to curb spending, on homes included, and then we start to see home prices come down. This is exactly what happened in the last 6-12 months. Around May/June 2022, we started to see interest rates increase, which started to lower the price of homes due to affordability. This knocked some buyers out of the market to buy a home, which led some of them into renting a property instead. We are beginning to see this again. When this scenario is coupled with a shortage of housing supply, but still buyers who want to buy houses, we will begin to see home prices increase. It is being predicted that housing prices by the end of 2023 and into 2024 will increase even more. This is due to high employment and low supply per Phil Soper, CEO of Royal LePage Canada in an interview in April 2023.
My job as a REALTOR(R) is to help my clients understand this so they can gain wealth through real estate investing, and at the same time provide someone with a place to live. It’s a win/win. It just might be time for you to make your home equity work for you instead of just sitting there doing nothing. Those who purchased property prior to 2020, or even during that year, likely have a good amount of home equity, which they can use as a down payment for an investment property.
Even though home values have settled from the frenzied market of the past, homes are holding their value. 
Rental rates are expected to increase over the next three years, due to increasing home values and a number of buyers outweighing the supply of homes to buy. We all see new homes being built around the region but it’s not nearly enough. We need all types of housing to be built so while we’re waiting to have enough supply, many people will still require a rental property. If you’re interested in exploring further about becoming a landlord, give me a call at 289-686-5004 and let’s chat.
