What happens to Calgary Real Estate when mortgage rates increase?
The most frequently asked question I’m receiving from clients right now is will home prices decrease as a consequence increasing mortgage rates? As we cannot predict what will happen in the future - the best advice I have for my clients is to look to the past for an idea of how the market will respond to our current increasing mortgage rate environment.
There are 2 periods of time we can look to to review the effects of mortgage rate changes in the Calgary real estate market; 2005 to 2010 and 2014 to 2020. For both of these time periods I’ve included 2 years after the peak of the interest rate increase as the real estate market tends to lag 6-12 months behind current events.
From 2005-2010 the 5 year fixed rate peaked at 7.54% in 2008. In the graph below you’ll see that the benchmark price nearly doubled from 2005-2007 to a peak benchmark price of $416,600 and decreased to $366,175 in 2009.
From 2014-2020 the 5 year fixed rate peaked at 5.34% in 2018. In the graph below you’ll see that the benchmark price steadily declined from 2014-2020. In the Calgary market this decline was caused by oil and gas prices.
In both graphs we can see minor decreases in the benchmark price. The largest impact we can see in both time periods is a significant decrease in the total number of sales. In 2008 the year mortgage rates peaked there was a 32.77% decline in total number of sales compared to the previous year. In 2018 the year mortgage rates peaked there was a 25.86% decline in total number of sales compared to the previous year.
Should I wait for home prices to crash if mortgage rates increase? Based on this data there will likely be no MONTHLY payment savings. If home prices decrease and mortgage rates increase your total monthly obligation will likely be the same if you purchase now or in a year. There may be some benefit if you plan on purchasing your home with a bag of cash :).