As expected by most economists, with today’s rate announcement the BoC held held its key lending rate at 5% for the fifth consecutive time. These announcement dates have become quite a big deal with many Canadians on the edge of their seats, with speculation running high that a rate cut may be on the horizon by mid-year. While the potential benefits of lower interest rates often spark optimism, it's crucial to consider the potential impact on the Canadian housing market, especially if this reduction isn't accompanied by an increase in housing supply.

Lower interest rates typically make borrowing more attractive, encouraging prospective homebuyers to enter the market. This surge in demand, however, can lead to increased competition for available homes, potentially driving prices upward. If the demand outpaces the supply – a scenario that may unfold with a rate cut unaccompanied by increased housing inventory – the Canadian housing market could experience further strain.

As the charts below demonstrate, supply in Newfoundland is at a 10 year low, demonstrating an obvious dearth in the post-covid era that shows no sign of recovery at the moment. 

Housing Affordability Challenges

While reduced interest rates can make homeownership more financially feasible for some, the lack of a corresponding increase in housing supply may exacerbate affordability challenges in certain regions. As demand intensifies, especially in popular urban areas, prospective buyers may find themselves facing higher prices and limited options.

For real estate investors, the changing market conditions may present both opportunities and challenges. An influx of buyers could potentially drive up property values, benefiting those with existing real estate holdings, as increased demand without a corresponding rise in supply could lead to more competitive bidding situations. We saw similar market reaction with a significant increase to the residential average price post-covid, which has levelled off due partially to interest rate control measures. 

Insights Looking Forward

As Canadians await the Bank of Canada's decisions in the coming months, it's essential to stay informed about the potential implications for the housing market. While lower interest rates can be a catalyst for economic activity, a thoughtful and coordinated approach to addressing housing supply issues is equally critical to ensure a balanced and sustainable real estate landscape. Homebuyers, sellers, and investors alike should monitor market developments closely and be prepared to adapt to the evolving dynamics of the market. I suspect that when interest rates do begin to tumble, it will be a slow decline compared to how quickly they increased, and that the market supply will have time to react to any increased demand.

But if the construction industry is not supported by government initiatives to mitigate supply issues, market dynamics will likely dictate a stabilization of interest rates at elevated levels like we are seeing today as a means to control housing prices. I’m not confident that is a great long term solution. 

In the relentless pursuit of progress, we often find ourselves enchanted by the allure of the new and improved. However, when it comes to the structural integrity of our homes, there's a compelling argument to be made for the enduring quality of mid-20th century lumber. In this era of fast-paced construction and modern materials, the saying "newer isn't always better" holds some water, and the decline in the quality of contemporary lumber should be a consideration for buyers and the longevity of their investment that may have you thinking about the pre-1980s home with “good bones” more seriously.

Timber Transition

The shift in lumber quality can be traced back to the 1980s when old-growth timber, known for its exceptional strength and durability, was nearly depleted. This marked the beginning of an era where the wood used in construction began to lose its intrinsic robustness. As a result, the lumber industry turned to fast-growth wood, harvested from young trees cultivated for rapid production.

One need only take a glance at a piece of mid-20th century lumber compared to its modern counterpart to observe a stark contrast. The older wood boasts a denser composition, displaying tight growth rings and a rich colour indicative of slower growth. In contrast, contemporary lumber often appears lighter and less dense, betraying its rapid growth origins. This difference in density has profound implications for the overall strength and longevity of the wood.

One of the key drawbacks of modern lumber lies in its scarcity of heartwood. Slow-growth wood, characteristic of mid-20th century lumber, yields a more significant amount of heartwood – the central, densest, and longest-lasting part of the tree. In contrast, newer lumber, grown rapidly for quick harvesting, lacks sufficient heartwood. This deficiency makes modern wood more prone to rot, significantly diminishing its lifespan compared to its older counterpart.

Termite Troubles

Another challenge with contemporary lumber is its increased susceptibility to termite damage. The softer nature of fast-growth wood renders it an easier target for these wood-consuming pests. In contrast, mid-20th century lumber, often resinous and naturally termite-resistant, stands as a testament to the benefits of using older, more robust materials in construction.

Investment in the Ages

Despite the allure of shiny new builds, there's a compelling argument for the longevity and resilience of homes constructed in the mid-20th century. With proper updates to plumbing and electrical systems, these vintage abodes represent a solid investment. The robustness of the lumber used in their construction often ensures that these homes will outlast their newer counterparts, offering not only a sense of nostalgia but also a practical and lasting choice for homeowners.

Good Bones = Selling Advantage

In the current market, the dearth of supply often results in buyers turning to new construction, and the steep costs of a custom build. Having an agent who understands the advantages of older homes and the ability to readily communicate those advantages to buyers can be critical for producing a successful sale. On the selling side, I always find an angle to maximize your return, and for my buying clients, this type of consideration can give you options when other competitive buyers don’t see that they have any. 

Navigating the real estate process is tricky, but it gets easier with an experienced agent by your side. If you’d like to chat about your real estate goals, it all starts with a conversation. Reach out any time to discuss your real estate.