A positive look at interest rate rises and their effect on sales

Media reports indicate real estate slowdowns across the GTA because of higher interest rates, but right now at In2ition Realty, we’re selling condominium suites and homes steadily at all the sites we have launched this year. In fact, most of our clients’ sales have reached construction thresholds already. We also have numerous projects gearing up to launch soon. As far as we’re concerned, we are simply back to a normalized market, during which we sell strongly and steadily, versus overnight blowouts.

Perfect purchase

High prices have sent some potential purchasers to the sidelines to wait for prices to drop, but condo prices have increased year-over-year. Prices aren’t taking the tumble the media predicted, because of the pressure to keep them elevated: Higher costs for construction materials and labour; supply chain issues creating costly delays; and bank profit thresholds for construction financing. Many buyers are still choosing condominiums to enter or upgrade in the market more quickly, because of more attainable price points. In addition, people realize how precious time is and how much of that elusive commodity can be theirs with a low-maintenance lifestyle.

Practicality comes into the equation as well. Pre-construction is perfect to purchase, as closings are typically in two to five years, giving ample time for interest rates to come down – which is very likely once inflation decreases further. The slight sales slowdown in sales, however, has not slowed pricing. Keep in mind that renting in Toronto and the GTA is expensive. According to the Toronto Regional Real Estate Board, during the second quarter of this year, the average rent for a one-bedroom condo in the Toronto region was $2,269, up 20 per cent from the previous year. Buyers realize that putting that monthly amount toward a mortgage instead is wise in the long run.

Rush to market

Once we see interest rates decline, it is expected that buyers, especially investors, will rush to the market. Even now, investors benefit from comparatively low interest rates and high rental rates. Remember, too, that we are in a situation where demand seriously exceeds supply. Waiting may mean you can’t find the home or condo you really want.

Buying now means you may have to give up on some of the luxuries you’ve grown used to, even if it’s temporarily. People have been doing that for decades to afford a home. Yes, rates are higher than they were during the pandemic, and those who purchased then will have to pay more when they renew after five years – but remember that their homes and condos will be worth a lot more, as well. Plus, they will have been paying on their mortgage for those years. Buyers of pre-construction homes and condos often earn equity before they even take possession.

Real estate remains one of the most lucrative investments you can make, even if you are an end-user, so any time is a great time to buy. Prices and interest rates fluctuate. Riding out cycles can work in your favour. Look at the situation realistically and ask your financial lender for advice. And if you have to give up a few dinners out or concerts every month, your new home or income property will be well worth it in the long run.