Lack of homes on the market will influence prices more than interest rates
By Steven Sandor | April 5, 2022
The basic economic principle is simple: If lending rates rise, then the prices of houses will fall. After all, it’s all about supply and demand, right? And, demand should be stunted by higher mortgage rates, right?
Well, not so fast. Because there are two parts to the supply and demand curve. And, when it comes to the housing market, supply in Edmonton is tight — and that’s why we might not see a dramatic shift in prices because of interest rates that have begun to rise, and are expected to rise for at least the next few months as the market managers try to stunt the inﬂation curve.
Bruno Schiavon, one of the owners in The Foundry Real Estate Co. (and one of our Ediﬁers from the January issue), says that, even if interest rates rise, the supply issue should keep prices strong.
“Historically, when rates increase the average selling price tends to go down,” Schiavon stated via e-mail. “With that said, historically, rate hikes have been much larger than we have seen over the last few years, so we can expect small increases versus large increases. Buyers and sellers should be looking at the supply and demand of our inventory to affect housing prices more than small interest rate increases over the next year.”
According to stats provided by the Realtors Association of Edmonton, there was an inventory of 3,550 homes on the market at the end of 2021.
Schiavon states that, before COVID, it was normal to see an inventory of as many as 12,000 homes on the market. “[Supply] is lower than it has ever been in the last six years. It is considered a seller’s market.”
At the end of 2021, the average price for a single-family home in Edmonton was $472,000, up 9.4 per cent over the end of 2020.
Meanwhile, a hike in interest rates will only further fuel Edmonton’s continuing disinterest in condos.
While the stats show that the markets are strong for single-family homes (up 9.4 per cent in average selling price at the end of 2021, vs. the end of 2020) and duplexes/row houses (up 9.5 per cent), the condo market is as soft as a down pillow.