Over the past year, interest rates have surged significantly, and the average 5-year variable rate is now around 6.45%. In comparison, just a year ago, the rate was at 1.6%. The increase in interest rates has led to a considerable increase in monthly mortgage payments, where on a $400,000 mortgage, the payment has increased from $1,617 to around $2,667. As a result, the real estate market has been slowed down considerably.
In January 2023, the real estate market witnessed 55.3% fewer transactions compared to January 2022. The market was so slow that it was 42.9% slower than the ten-year average for January, which is typically a slow month for real estate transactions. The increase in interest rates has led to a considerable rise in monthly mortgage payments, making it challenging for buyers to afford new properties.
Despite the market slowdown, prices have not dropped as much as anticipated. Detached houses have seen a 9.1% decrease from January 2022, while apartments have only decreased by 1.1% since last year. More surprisingly, apartments have gone up by 1% in the last month, and there are differing opinions on what may have caused this phenomenon.
Rentals.ca reports that Vancouver remains the most expensive city in Canada for rent. The average cost of a one-bedroom unit is $2596 per month, and a two-bedroom unit rents for an average of $3562. Given these high rental prices, it is unsurprising that many people prefer to invest in the real estate market, despite the high interest rates.
Looking ahead, the Bank of Canada may be ready to pause further interest rate increases. If this happens, and the interest rate stabilizes, we might see a lot of activity in the real estate market in the spring. As a result, if you have been considering purchasing a property, this could be a good time to make a move.
In conclusion, the rise in interest rates has had a significant impact on the real estate market, slowing it down considerably. Nevertheless, it is not clear whether this trend will continue, and the market may pick up in the coming months. As a result, it is crucial to keep a close eye on the market and make informed decisions before making any significant purchases.