According to Jonathan Miller, CEO of Miller Samuel Inc., a U.S. based real estate appraisal and consulting company, “low rates make housing less affordable.” Although this idea seems contradictory, it is one that merits investigation. It’s no secret that low interest rates have fueled the overheated housing market. Low rates coupled with depressed inventory levels have been driving up prices — the simple law of supply and demand which is also a key factor driving up rents right now in Canada due to housing supply shortages.
When we look at the late 1980’s and early 1990’s, home affordability was worse than it is now. Yet, sales managed to hold relatively stable over that period. Does this mean home prices will go down? Not necessarily.
This results in additional inventory availability, but demand is still increasing, especially with out-of-town buyers and investors, fewer bidding wars but not a lot of negotiation, inflation starting to correct itself decreasing living expenditures and opening up disposable income, as well as an increase in the profitability of financial assets / investments.
What does this all mean? It means historically, we are in an excellent place. The surge in interest rates simply seems dramatic because mortgage interest rates achieved record-breaking lows over the past two years