Hey everybody! With 2022 in the books, we took some time to review last year, and how we fared in the Greater Sudbury Real Estate Market. If you haven’t read that blog post, I recommend giving a quick read!
Looking ahead to 2023, it’s time for me to make some predictions! Now, nobody has a crystal ball, and me least of all… What I am relying on here is my decade-plus of working in the Sudbury Real Estate Market, and my analysis of the market statistics of the recent past, to make educated guesses of what I think the future will hold! Some of these are fairly obvious, while other may be a little bolder!
As I want to get into enough detail with each of them, I have decided to break it down into a 4 part series. This will allow me to go into detail with my reasoning behind each prediction, and engage in discussion about them.
Only time will tell if I am right on any of them!
At the time of writing at the end of January, the BoC rate finds itself at 4.25%, which is where we ended 2022. It is anticipated that the Bank of Canada will raise rates by another 0.25% before the end of January, bringing the overnight rate to 4.5%.
Now, there are a lot of factors that come in to play here. What does the US Federal Reserve do with their benchmark rate? Has the US sorted out the debt ceiling issue? What kind of chaos does this situation cause with regard to financial markets and the world economy as a whole? Are we in recession? Where is inflation at?
There are so many variables at play! It can be difficult even for someone in the financial industry to predict what interest rates are going to do, let alone a humble realtor… I am lucky that I have many friends and colleagues around me that work with or closely to the financial services sector, so I get to pick their brains a little… And interest rates have been a regular topic of discussion for us (so much so, that our wives/girlfriends often have to tell us enough shop talk!).
The reality however is that this is something on our minds, as it will have a drastic impact on our businesses moving forward. The BoC rate affects everything from mortgages, credit facilities (credit cards, LOC, etc…), bond markets… Everything in finance is somehow ties to the benchmark rate.
The BoC has been using interest rates to get inflation under control. Some say it’s been excessive, but all agree that something had to be done. While the rate drops were necessary during the pandemic to keep the economy afloat, rate hikes were certain to follow.
Newton’s Third Law says (more or less) that any action will have an equal and opposite reaction. Although being a law of physics, I have often found that this principe can be applied to financial markets. Low rates can lead to higher inflation as they can spur demand. So, from that perspective, inflationary pressures were predicted. Conversely, rates were going to have to go up to rein in inflation. I just don’t think many people saw the steep increases that we saw, and as quickly as we saw them.
For rate increases to have an effect, it takes time. The markets need to adapt, and market fluctuations need to sort themselves out. Think of it like the wake of a boat travelling on a lake. The waves are largest right as the boat cuts through the water, and get softer and smaller as they travel outward. Apply that concept to interest rates.
My thoughts are that we will see another increase (or at time of publishing have seen!) of 0.25%, bringing the BoC rate to 4.5%. Then, we will see that number hold for 2 quarters while the ripples in the economy sort themselves out. That means these rates will hold through Q1 and Q2, or through the spring real estate market. We will not likely see an easing of interest rates before Q3 at the earliest, unless something dramatic happens in the economy.
We will head in to a recession, if we aren’t there already. As Q3 winds down, and we head into Q4, my feeling is we will see a reduction in interest rates before the end of the year. This will be done in hopes of stimulating the economy, and stave off the effects of a recession. How many, and how much are the questions we are posing here. I anticipate as much as 0.5% reduction by years end, bringing the rate down to my predicted 4% to finish the year. I would consider my prediction to be successful if we end the year anywhere in the 3.75% to 4.25% range, both of which are entirely possible before the end of the year.