INTEREST RATES AND MARKET ACTIVITY Dave here…and heading into 2023…let’s talk about the interest rates increasing, and what that has done to market activity. These are my thoughts as to what occurred in the last couple years. I’m just going to use the market in Orangeville, but these trends are seen in all towns, townships and cities everywhere…across the province.

So, during the pandemic the bank rates were at historic lows. Prices were at reasonable levels through 2020 and there was a lull in the market due to the unknown of what covid was, lockdowns, and protocols that needed to be followed when buying and selling during the pandemic. The Real Estate Industry was still deemed an essential, but it was nowhere near “business as usual”. Society eventually ended up opening up, and we were pretty much back to normal with dining, sports, kids back to school, etcetera.

In 2021, from January to about mid November, average sale prices in Orangeville were hovering at healthy levels. Prices were in the mid 700’s to the low 800’s during that stretch. With the interest rates at .25%, borrowing money was relatively free, and buyers could afford more expensive homes during this time.

Then, in December of 2021 we saw a drastic increase in average sale price in Orangeville all of a sudden. From the low 800’s to above $950,000. I really didn’t know what was happening, as December has typically been a slow month with Christmas holidays.

Then in January, February and March of 2022, average sale prices spiked to over 1M in Orangeville. I didn’t know what was happening, and was a little scared of these inflated prices, as these homes that were selling were not worth what people were paying. It was a feeding frenzy with panic buying occurring, people throwing their money at homes at ridiculous prices, and the inventory was at all time lows. The market was insane…and what goes up, must come down. But what is down, most of the time must go up, and this is what happened.

During these crazy months at the beginning of 2021, Inflation rose over 5%, the media was all over the inflated house prices, so the market needed a correction. So we saw our first interest rate hike from .25 to .5%. That free money wasn’t going to last forever, and we started to prepare for rate hikes until inflation and the real estate market was under control. Interest rates went up to 1% in April, 1.5% in June, Up a full point in July to 2.5%, up to 3.25% in September, 3.75% in October, 4.25% in December, and here we are now at 4.5%. Many predictions say that we most likely won’t see another rate hike for a while now.

What did these rate hikes do to the real estate market? Well, if you purchased at those inflated prices a year ago, and took a large variable rate mortgage at those low rates, those people may be in trouble, as their mortgage payments have increased quickly and drastically. Also, buyers purchasing power also started to fall. They all of a sudden couldn’t afford what they could before.

So, once interest rates started rising, average sale prices started falling. From the high 800,000’s-low 900’s. Then in August last year, down to the low 800’s, then into the 700’s, and then average sale price in December fell to $716,000 in Orangeville. So from over 1M down into the low 700’s in 12 months. The amount of sales occurring was also reflected in the lowering of prices. So yes the market definitely slowed down.

So what’s happening now. Well, the spring market has started. The spring market really starts January 1st and runs into mid march. The spike of inventory normally hits mid march, but I’ll tell you the buyers are out there right now. Showings on available listings are up for sure. And average price last month in Orangeville was around $875,000.

I personally believe that with the public knowing that the last rate hike may be the last for a while, that they’re thinking&hellipod…I don’t have to worry about that as much anymore. Buyer’s consumer confidence is back, prices are back to reasonable levels like we saw at the beginning of 2021, and the buyers who were sitting on their hands, not making a move in the real estate market…well…we’re seeing that pent up demand hitting the market now.

So I predict that we’ll see an active spring for sure. Prices will go up a little, but nothing like we saw last spring.

These are market cycles and there always are cycles. We saw a spike in prices in 2008, 2017 but nothing like we just saw last year. That was a big one, and wasn’t sustainable at all.

We’ll be keeping an eye on interest rates, inflation, and home prices over the next year to see what happens in our beautiful area of the headwaters! Dave