I wouldn't worry too much about the amortization period being stretched out if you still have a long way to go (+20 years). Most likely, you will experience multiple economic cycles during that period and the amortization period will come down again when central banks are forced cut rates again during another economic downturn.

Personally, I wouldn't be looking to upgrade or buy a second/third property until there is substantial evidence that the economy has bottomed out. Most likely, the world economy is grinding down to a stagflationary type environment in the next two years and it is going to be tough to see real rates of return in any asset class, let alone real estate. Volatility swings both ways; if its possible for real estate here to shoot up 100%, its also possible for the valuation to drop substantially in the face of global macro headwinds.

As for near-term interest rates, markets are pricing in 1.5~2% increase by year-end. This isn't a guess based on gut feel, its what the markets are collectively pricing based on the billions of dollars being lent between financial institutions everyday. Don't be naive to think that central banks care about some homeowners hitting their trigger rate. I can guarantee you that isn't even an indicator in the hundreds of metrics that they monitor. Their job is to prevent the overall economy from going into an inflationary spiral. Detached homeowners in Vancouver and Toronto have the most to lose, but they have also gained the most in the last decade and are the wealthiest demographics so there is a lot of buffer.

This is what I've been thinking too, prices went up so much lately that most people who've owned for a few years have made so much gains. Even a 20% correction isn't that bad.

Another side of things is inflation, if inflation stays high doesn't that mean house prices will stay propped up? 7% inflation should mean your house value would still climb. And even if you pay 5% interest, the bank is still technically loosing 2% to you due to inflation. Since the cash you have is trash because the gov printed so much.

While I agree with your sentiments on holding off on purchasing additional properties for the time being, I don't really see how the Vancouver housing market will be in for a sustained down turn with significant price drops though.

The whole Metro Vancouver is bounded on 3 sides, and there is very little additional land that can be freed up for housing development (unless you tap into ALR, and that's generally pretty difficult). Population is estimated to keep going up. (CoV did see a mild population drop recently due to COVID.) Everybody knows this, so unless they absolutely have to sell, they are not going to sell with any sort of significant discounts.

I hear the population growth argument frequently but I'm not really convinced. Population growth was never the primary reason why real estate prices had a parabolic rise, so population growth doesn't have to align when the valuations are coming down from an extreme level. It was the massive influx of capital via quantitative easing and secular downtrend in interest rates that drove all asset classes, including real estate, to record valuations (macro trends which have completely reversed now).

Metro Vancouver is projecting a population growth of 1% per annum until 2050 http://www.metrovancouver.org/servic...onalGrowth.pdf. That low 1% growth won't even translate to 1% growth in homeowners unless you assume that every net added person will be buying a home. Also, a sustained increase in condo supply that offer a more reasonable valuation could compress the premium for detached homes (how many new homebuyers can afford million+ mortgages when rates are continuing to rise?).

Over long-term, population growth and local GDP growth will support growth in RE prices but when valuations are so far detached from the fundamentals, those factors aren't the primary drivers anymore. For reference, Toronto and GTA is already seeing price declines of 10-25% depending on the location and type of home.

https://www.thestar.com/business/rea...bourhoods.html

"West Toronto Lakeshore, which includes Roncesvalles-High Park-Swansea area, saw a significant decrease of 21.36 per cent in the average home price from $1.7 million in April to more than $1.3 million in May.

West Midtown — from St. Clair Avenue West to Eglinton Avenue West, and Dufferin Street to Yonge Street — saw an even bigger drop by 31.15 per cent for the average home price from $2.6 million in April to just over $1.77 million in May.

The main factor for the decrease in these neighbourhoods is that homebuyers are more reliant on institutional money, said Danielle Demerino, a Toronto-based real estate agent.

“They’re more affordable neighbourhoods than Rosedale or Forest Hill. You get the same kind of cachet without spending $4 million on a home,” she said. “But as mortgage rates rise, the cost goes up, it’s less affordable and prices fall to accommodate it.” "

For peeps that don't know Toronto areas, these aren't cheap places.

Ontario is nothing like BC geographically though... they just keep expanding west north or east as much as they want... really the only direction they can't go in is south.

All these communities were nothing 20 years ago and were created out of creep and people being willing to live farther away and commute.

It's like Langley to Vancouver... except that there's nowhere else to go here... just east that's it.

All these articles popping up now about “your typical mortgage payment may be 30-50% higher in 5 years” from the BoC

Well fucking do somthing about it then govt. raising interest rates until everyone is under water isn’t the answer.

Again, combating inflation by making it so people can’t afford the things at inflated prices because their mortgages are too high sure as fuck isn’t solving an inflation problem. BOC just throwing their hands up in the air and saying “well” isn’t really fuckin solving anything.

The Bank of Canada's mandate is to control monetary policy and to keep inflation in check. Their tool to do this is through setting the prime rate.

That is their job.

It's not the Bank of Canada's fault that some households may feel the consequences of their hasty decisions.

Macklem is right - keeping inflation in check is broadly more important for economic stability than a small portion of homeowners going under. Besides, isn't that what all of the people who want their detached house, but have held back because of irrational pricing, have been calling for? That people who have no business of owning high priced real estate should pay the consequences for their irrational decisions?

A good friend of mine just started as a senior analyst at BoC, looks fun, they get to propose their case for interest changes.

As Tapioca mentioned, the Bank of Canada's mandate is to control inflation to ensure the integrity of our dollar. The dollar is what allows us to buy commodities. So it's far more important that this dollar stays stable and valuable so that we don't get spooked and exchange it all for USD. Look what happened to the Russian Ruble, if that happened to our CAD, we'd quickly swap to a new currency for stability.

They obviously worry about household debt, but if given the choice between keeping 2% inflation and a ton of us foreclosing homes. The former is more important as it saves the jobs. We should probably start buying all the tents in case people go homeless.

It’s such a trickle down effect to that even third world countries aren’t seeing.

As money becomes more expensive it becomes more expensive to store shipping containers, move those goods, pay people, etc. and it just gets passed onto the consumer.

One thing 100% they could do in an instant is lower the gas tax, but of course they won’t.

I saw a guy on my IG post he went to Starbucks in Turkey and got like 3 sandwiches, 2 coffees, and a frappe and it’s like $6 Canadian. I would assume Companies like Starbucks have such secure supply chains their prices only are effected by outside sources, ie. gas prices, loan prices etc. even the giants can only go on so long without passing those costs onto customers.

Edit* in regards to the BoC “doing its job” there are so many examples of ways besides raising interest rates that effect inflation. This govt. obviously just prefers to do the easiest thing possible as opposed to get creative in their actions to slow inflation. While yes there is global inflation going on, a lot of the first world countries are not experiencing it to this degree.

Turkey is a bad example though. They've seen runaway inflation in the last while and Starbucks there may not be a good indication of how much things actually cost.

I don't think 100% increase is possible in the short-term, if my 15-year old 1BR goes from $600K to 1.2M, I'd have to start charging close to $4K/month to get 1-2.5% return after taxes.

^
When that happens I imagine people will start rioting or abandoning the city. Unless we suddenly get all the tech giants and average income went from $60k/person to $150K/person.

Maybe in 20 - 40 years a 100% return is possible? That gives it a 2.5 - 5% annual return horizon.

You can use the states in the same example, or seemingly most of mainland Europe.

It seems hard to find solid numbers to reference against one another but most of Europe seems to be 2-3 points below Canada. The US is always a direct comparable but hard when their GDP is so much greater than ours

Here's my uneducated opinion:

Inflation over the last few years has been primarily driven by the monetary policy response to the pandemic, supply chain issues from countries shutting production down, and good old-fashioned profiteering. The BoC overcompensated with monetary policy that was too loose for too long, and corporations took the opportunity to raise prices and generate record profits. Now that inflation is rampant because the BoC's response, they will overtighten too far and for too long, and it will drive the country into another recession (personally, I think we are already there). And in response to the recession, they will loosen their monetary policy again.

One thing's for sure though, I can count on the BoC to avoid the goldilocks zone and either run too hot or too cold.

What do consumption taxes have to do with the Bank of Canada? The Bank of Canada has no say in how the government(s) in this country tax goods and services.

By they I think he means the gov, just look at the other provinces they cut back their taxes. Unlike Cancer survivor Horgan here, let's build a museum just to show off the natives guais and delete the rest of BC history :pokerface::lawl: that will keep the good times rolling

If you had policies in place where home prices weren’t running rampant, would we be in this position?

I think the vast majority of people are going to be able to weather this storm, all it means for those people is far less money in your pockets. Inflation coupled with these interest rates will likely be a greater death blow to small business than Covid was.

Quick google search of headlines:

UK: Bank of England raises interest rates as it warns of recession and 10% inflation

USA: US makes biggest interest rate rise in 22 years

Australia: Reserve Bank hikes official interest rate by 50 basis points to 0.85% to curb inflation

European Central Bank: Eurozone interest rates set to rise for first time in 11 years

Many countries globally are seeing inflation upwards of 5%+ so all are reacting accordingly. Not sure what BoC is doing that is so wrong compared to everyone else.

We all in the same boat.

For Canadians, it's especially hard because many are overleveraged in the housing market, but I can't blame BoC for acting the way they are.

It will be up to them to find a balance so that the housing market doesn't come crashing down, but until then it's hard judge if they made the right decisions or not.

Inflation is interesting.

My company is better off with inflation and charging 10 - 20% more for products. We do suffer from higher interest rate on mortgage / loans / cost of goods / payroll / some expenses but that 10 - 20% top-line boost offsets everything else.

Assuming everyone keeps their jobs, aren't we all better off with a major crash? If we jacked it up another 3 - 4% to curb the 6 - 8% inflation expectation. Prices drop lets say 30% from some foreclosures. Those people who qualified for $900K homes and sold for $630K should be able to pick themselves back up and and rebuy at 630K?

It seems like the inflation we're seeing is a consequence of depressed demand during COVID which is all coming back now but we haven't been able to spool up our factories quickly enough thus you've got weak supply and high demand at the same time and a lot of stuff doesn't catch up instantly - you can't magically cut down trees and turn them into furniture and you can't instantly mine the minerals you need to make microchips.

If that's where inflation is mostly coming from then it should be quite transitory - restoration of the supply chain should take another year or so and demand will start petering off.

But timing all of this is really difficult - the BOC has said they erred in waiting too long to slow things down but it seemed very few people saw it happening like this (or to this degree).

BoC governor had a press conference today. Important points https://www.ctvnews.ca/canada/bank-o...tion-1.5939792:

• Price correction in housing prices could be coming soon, according to Bank of Canada Governor Tiff Macklem, who says it would be “healthy” to see a dip in house prices.
• Last week, the Bank of Canada signalled it is willing to hike its key interest rates above the previous target of three per cent to deal with what Macklem says is “an overheating economy.” “We think the economy can handle higher interest rates, we think the economy needs higher interest rates and in our last decision we indicated that we were prepared to move more forcefully if needed," said Macklem.

Basically, this is like in class when the teacher is practically telling you what will be on the exam. Unless you're George Soros, never bet against the central banks.

I think this is gonna create a rift of owners and none owners 2 year fixed is like 4.5% 5 year fixed is up to 4.85% no one is talking about this but it means your stress test now at least 6.5% Vs standard 5.25%. who's gonna qualify for a mortgage at 7% :pokerface:

Rents higher with people who have been wishing for “the crash” completely priced out now?

I was watching clips of the press conference, and the BoC governor explicitly stated that the bank wants to see excess demand in housing come down. Can't make their intention anymore obvious than that. I don't even think the bank thinks its a bad thing that renters will sit on the sideline while the prices come down. The bank is extremely concerned with the current level of household debt already.

Other interesting points:

• Investors accounted for 22% of property purchases with mortgages in the fourth quarter of 2021 according to the bank. Those investors are taking out existing equity in other properties they own to make new purchases, which the bank says “highlights the feedback loop between rapid gains in the house prices and the strong demand for housing that investors generate.”
  
• Bank warns that it’s too soon to tell if the recent decrease in resale activity and prices are “temporary or is the start of a deeper, lasting decline.”
  
• If investor demand dries up for Canadian housing, the bank warns that would “amplify the downward pressure on prices” and could “lead to an abrupt price correction in the future.”
  

If the BoC believes that we have an "overheated economy," then we are about to be plunged into a severe recession. Not that we really have a choice, as the BoC will have to follow in lock step with the rest of the world. Housing prices & the stock market (and most other assets) will all crash.
K shaped recession... with a K shaped recovery to follow. Revscene will be fine too, everyone's a baller here :). We're going to be competing for that $4m house when it's $2.5m lol.