Domestic market continues to weaken as rate hikes continue

“As a buyer, you should expect not to end up in some kind of crazy bidding war”: CEO of Royal Lepage

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Homebuyers in Toronto continue to see prices and sales fall as the Bank of Canada continues to raise interest rates in an effort to bring down inflation.

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“Interest rates are putting the brakes on – rather than slamming on the brakes – which was needed when house prices spun out of control,” said Royal LePage chairman and chief executive Phil Soper.

He called what’s happening in the market a “property correction because prices have gone over.”

Toronto Regional Real Estate Board sales figures for the month of May are expected to be released shortly.

Buyers say they’ve noticed a difference.

“It was a calm, thoughtful purchase that I think was a byproduct of interest rates,” Farshid Z said.

He and his wife Faroush bought a house three days ago in Toronto after selling in Newmarket.

“I wasn’t trying to time the market. But I was happy to see less competition and less bidding wars,” said Farshid, who had been actively searching for two to three months.

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The couple will return to the city after moving at the start of the pandemic.

Soper — and other real estate and mortgage experts — point out that the central bank’s overnight rate is still not where it was before the pandemic crushed the economy.

“Canadian homeowners and hopeful buyers readjust their monthly budgets and affordability expectations after each of these increases,” says Leah Zlatkin, broker at LowestRates.ca.

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“While this change may be difficult to manage alongside other increases in the cost of living at the moment, it is important to remember that before the pandemic the overnight rate was 1.75% and that we have not yet returned to this level.”

The Bank of Canada has signaled that further rate hikes are on its radar.

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“With an economy in excess demand and inflation persisting well above target and expected to pick up in the near term,” the Bank of Canada said Wednesday. “Interest rates will have to rise further.”

  1. The Bank of Canada building in Ottawa on May 23, 2017.

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The expected rise on July 13 is expected to match the half-point increase announced on Wednesday.

The bank said it “stands ready to act more forcefully if necessary to meet its commitment to meet the 2% inflation target.”

On the way to that goal, Soper said homebuyers should expect an easier market.

“As a buyer, you should expect not to end up in some kind of crazy bidding war,” he said.

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