One significant factor affecting demand for real estate is how much buyers have to pay for the money they use to buy real estate. Since the vast majority of buyers are actually ‘buying a payment’ – as opposed to a purchase price –  we’ve seen how buyers can pay ever-increasing prices without detracting from their monthly budgets.

The following graph represents the change in 5-year insured rates from January 1, 2020, to the present day.

For some perspective, let's look at how the payments for a $600,000 mortgage compare between the lowest insured 5-year fixed rate from the graph above and current rates.

The same mortgage eats up an additional $811.74 per month today compared to just February of last year. 

In the investment world, real estate is largely an interest rate play. Professional investors do their best to predict the future interest environment in a bid to determine how well an investment may perform over time. Since most residential buyers are looking for a place to call home, attempting to predict interest rates isn’t usually high on the list of priorities. Still, having a sense of current rate trends can help any type of buyer make a more informed decision.

The governor of the Bank of Canada provided some guidance following the central bank's most recent rate announcement.

• Bank of Canada Governor Tiff Macklem’s general remarks regarding the economy https://youtu.be/MP07AI0NX5s?t=115

 • Bank of Canada Governor Tiff Macklem’s specific remarks regarding rates https://youtu.be/MP07AI0NX5s?t=617

The key takeaway here is that the Bank of Canada has decided inflation is the biggest elephant in the room and is determined to bring it under control. Interest rate hikes are the central bank's main tool for this. It’s a blunt instrument, however,  with a high likelihood of causing collateral damage to the Canadian economy.

Regardless of the interest rate environment, properties will continue to be bought and sold – people require homes after all. It may just be prudent to exercise a more cautious and thoughtful approach.