The Fed lifted its main policy interest rate by three-quarters of a percentage point last month, as it attempts to cool down consumer and business demand. The move followed a half-point increase in May 2022 and a quarter-point increase in March this year.
In its notes, Fed officials acknowledged they need to raise interest rates to a point where they would start to meaningfully weigh on economic growth.
There are hopes the Fed won’t need to be overly aggressive with rate hikes. This week the markets are signaling that possibility and are putting in a string of positive days.
I’ve suggested for several weeks now that it will not be hard to break the back of the consumer and prick the real estate bubbles, especially in Canada.
See the story below.
The fall of the Canadian real estate market
While no one knows how far things will go, the cracks in the Canadian real estate market are showing—and growing.
If you were looking to sell, well, you probably missed the peak prices for this cycle. You can close the door on that notion and face the new reality—real estate enthusiasm has left the building.
In Canada’s most expensive market, home sales are dropping by $2,200 per day according to this Better Dwelling article.
Most estimates I read suggest home prices could fall 15% to 20%. That’s good news if you’re a buyer. But know that you will likely face higher borrowing costs. The rising rate environment is bringing down housing prices, and that impacts the borrowing front.
The ideal situation for wannabe home buyers might be tumbling home prices and a recession. At that point, we might be looking at rates that are reduced to stimulate the economy. This is not advice as any type of market timing—even with real estate—is more than tricky, but I think that scenario will play out. If I were in the market for a home, I’d wait for a recession and falling rates. Yet, a prospective home buyer might simply watch the prices decline. And when the price and borrowing costs hit your affordability zone, go home shopping.
And be sure to check out the MoneySense complete guide for first-time home buyers.
Dale Roberts is a proponent of low-fee investing, and blogs at cutthecrapinvesting.com. Find him on Twitter @67Dodge for market updates and commentary, every day.