Interest rates and stocks as affordability factors

The subject of much discussion over the next 24 hours will be whether the Bank of Canada will choose to continue raising interest rates. Interest rates and inventories: affordability factors?

A long-awaited decision

With the October 25 decision deeply divisive among economists, it will be interesting to observe the extent to which the Bank of Canada is prepared to impose tighter financial conditions on an already weakened economy.

With our neighbors to the south facing interest rates of 8% on new home purchases, we still have some catching up to do, but our economies are totally different.

The most glaring problem in Canada is undoubtedly the housing market; any increase in interest rates will not solve the fundamental problem of affordability, which stems from a shortage of inventory. We face the “chicken or the egg” dilemma: will homebuilders have the confidence to buy real estate and bear the burden of higher interest rates, navigating a more complex zoning procedure than in previous years, to introduce new housing into what is considered a standard sales cycle?

Inventories as a crisis catalyst

Fundamental changes to this procedure are imperative, and may require government intervention to encourage promoters to take the risk of launching new businesses in order to restore affordability for Canadians over the next decade. Don’t be distracted by interest rates; the real catalyst of the affordability crisis is lack of inventory.

Remember that you only negotiate the price of your home once, while interest rates fluctuate over time.

If you manage to buy a home in this market, you’re in a better position than someone who potentially bought at the peak in 2021 or 2022.

For more information, feel to contact Lacasse Shapcott Team.

To follow me on linkedin, connect with me

Kyle Shapcott

kyle@equipels.com