Inflation & Interest Rates' Impact on the Halifax Market

As you are all likely more than aware of the turbulent economic times we are living through, we wanted to have a chat with Morris MacLeod, who is an Investment Advisor at RBC Dominion Securities, in order to try and better understand some of the pressing economic issues that have had an oversized impact on our spending habits and financial plans over the past couple of years. Carlisle Norwood and his brother-in-law Morris MacLeod sit down to have a chat about inflation, interest rates, the recent slowdown in the real estate market, and their outlook on the Halifax real estate market. Additionally, we have provided a summary of the key points discussed for your convenience below.

*Disclaimer: This is the first podcast we have ever recorded so please bear with us as we learn!

Carlisle Norwood – CEO & Broker, Full Circle Realty:

Carlisle has 10+ years of experience in the real estate industry. He has been a licensed Realtor™ since 2012 and has worked alongside industry leaders in commercial and residential purchase and sale. Since 2019, Carlisle has been a licensed Broker and started his own brokerage, Full Circle Realty, which now consists of a team of 5 other driven real estate advisors. Additionally, he sits on the Commercial Committee for Nova Scotia.

Morris MacLeod – Investment Advisor, RBC Dominion Securities:

As an Investment Advisor with RBC Dominion Securities, Morris draws on his expert knowledge and 10+ years of experience in financial services to develop comprehensive wealth management solutions for his clients. Prior to his role at RBC, Morris worked for another financial institution where he provided construction loan financing services for real estate developers.

Central banks want a certain set of low inflationary pressures throughout the economy as a consistent basis. After the housing crisis of 2008, we saw massive quantitative easing to invigorate the economy. In simple terms, quantitative easing is a method used by governments to flood money into the economy in order to jumpstart economic growth. This involves massive purchases of bonds in an attempt to lower interest rates, ultimately making borrowing more affordable.

Just as the Bank of Canada was starting to pull back some of these measures, the pandemic happened in 2020. Because of this, we saw interest rates go down to almost zero. Getting a mortgage had never been more affordable. Now that the economy has started to reopen, we see the Bank of Canada starting to tighten their monetary policy to make sure they have levers to pull during the next financial crisis. At the same time we are starting to see inflation take off.

These impacts of inflation that we are seeing are directly impacting people’s wallets. In order to deal with this the Bank of Canada has been raising interest rates. This acts as a widespread damper that goes across the entire economy, especially real estate. This is evident in mortgage rates, as there is a substantial difference between financing a house now compared to earlier on in the pandemic. For example, in July 2022, a $500,000 mortgage with a 5 year fixed interest rate of 4.34% would require a monthly payment of $2,723.07. In July 2020, the same mortgage amount with a 5 year fixed interest rate of 1.89% would require a monthly payment of $2,090.82, $632.25 a month less than in July 2022.

Interest rates directly correlate with how much someone can afford to pay for a property. Now that interest rates are increasing, it is really starting to stabilize the real estate market. Historically, increasing interest rates affect larger urban cores quicker than smaller cities such as Halifax.

The graph below provided by RBC illustrates the impact that rising interest rates has on the demand for real estate, based on how many homes are sold versus listed in a month. In congruence with the Bank of Canada’s rate hikes, we have started to see a shift from a seller’s market to more of a balanced market.

When real estate is increasing drastically in these larger city cores or an event like the pandemic happens, people tend to move to places such as the Maritimes for a more affordable cost of living, as there are significant price discrepancies between real estate markets on a Canada-wide scale. We have seen Toronto and Vancouver explode in terms of pricing for a long time now, while in Nova Scotia, the 21.28% median sales price increase that we have seen in the last 12 months is relatively new. This drastic price increase is illustrated in the graph below.

Source: NSAR. January 2021 – July 2022, 12 month rolling average.

From January 2009 to January 2020, Nova Scotia had seen average median sales price growth of 3.12% and as a result we have experienced a completely different market than the larger city cores have. Corresponding with the start of the pandemic, the median sales price has increased considerably since 2020. The graph below displays these price increases over time.

Source: NSAR. January 2009 – July 2022, 12 month rolling average.

During the pandemic we have seen a lot change in Halifax for a variety of reasons. Some of these variables include Halifax building a beautiful downtown, people realizing that they could at the time get much more for the same amount of money in Halifax than in a larger city such as Toronto, and also the rise of working remotely. According to the City of Toronto, as of 2018, the Greater Toronto Area had a population of roughly 6.30 million people. If just 0.10% of people living in the Greater Toronto Area decided to move to Halifax, this would translate into 6,300 people. A small percentage of people moving from big cities to smaller cities such as Halifax can have a significant impact on smaller cities and their real estate values.

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