What You Need to Know About the Interest Rate Hike (Interview)

By: Dana Gain

What You Need to Know About the Interest Rate Hike (Interview)

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Today we have answers to all your questions about the recent interest rate hike, which was the first increase since 2018.
John Lusink is the man with the answers. John is an accomplished leader in the real estate industry, and has repeatedly distinguished himself in both residential and commercial sectors for over 3 decades. He is currently the President of Right At Home Realty, a brokerage with 10 branches across Ontario supporting nearly 6,000 REALTORS®.
Today we asked John a few questions about the recent interest rate increase. In this interview, John clarifies who in the market will be most affected by the rate hike and whether buyers or sellers should be concerned with upcoming changes later this year.


DANA: So, here we are with John Lusink, who is the President of Right at Home Realty. Thank you so much for joining us today, John.
JOHN: My pleasure, Dana, happy to be with you. 
DANA: Now, of course, last week's interest rate hike created an awful lot of questions in the market from buyers and sellers, and I thought it would be helpful if you could share some of your expertise.
Beginning with the very first question, the interest rate hike last week - was that a surprise? 
JOHN: No, I don't think so. I think if anything it was more than expected. And, you know, certainly, during a previous announcement where the bank held off on increasing interest rates, it was overdue, quite frankly. I think this was the first move since 2018, and it now comes at a time when inflation is running at 30 year highs.
So, you know, definitely not a surprise, and probably the first of another five to seven to come.

DANA: And just to follow up on that question, I've heard a lot of different estimates of what’s coming in 2022. I've heard 3, 5, 6. What is your opinion on that? 
Yes, the latest round of speculation on this is that we'll probably see another five to seven rate hikes. A lot will depend on if they're another 25 basis points as this one was. Then probably I would say at the higher end of the number of hikes. If there's a higher than that bump in between them, you know, maybe less. But I would say certainly 5-7 is what the markets believe this year. 
DANA: In this year? 
JOHN: Yes.
DANA: That sounds like a lot. Is that a lot? 
JOHN: You have to look at sort of where we're at. It sounds like a lot. You know, how much of an impact will it have is really the question and on who. I think in light of where we're at with inflation, it's probably necessary, quite frankly.

So, you know, is it a lot? Yeah, if we have seven hikes it would be, but it's expected.

DANA: So, moving along then, who do you think is going to be hit the hardest by this? 
JOHN: Yes, I think that that's a great question. I think that the people that are going to be affected are those that are sitting precariously at higher levels of debt.
Back in the 1980s when inflation was running high like it is now, household debt to GDP was around 40%. Today, it's over 100% of GDP, so what does that mean? It means that those individuals who have excessive debt and are kind of really sitting almost at the upper limit and are on variable rate mortgages, for example, are going to be at the most risk.
So I think first time homebuyers are certainly are going to be affected. And as I say those that have maybe fallen victim to what's going on during the pandemic and are struggling with debt and income, quite frankly.
Really the big issue, Dana is the inflation rate, which is at 30 year highs. Early on people talked about it being temporary. I don't think it is so temporary.
So this is where the central banks are now saying, okay, enough, we need to deal with it. And that's really what's going on. Your rising fuel prices, food prices, all of that is having a serious impact and so they need to deal with it. And the way to do that is to hike interest rates. 

DANA: You know, and this is one of the reasons that I am so grateful that we've drawn you into the conversation here today. Do you think the interest rate hike will start to calm the market down? Have you seen signs of that already? 
JOHN: Anecdotally, there is talk from across our different offices and certainly other real estate professionals they speak with that the market is, I don't want to say softening but that there's some signs of a little bit of relaxing of the frenzy we've been in.

One of the things we see whenever there's an interest rate hike, even if it's pending, is a rush by certain parties, whether buyers, and sellers too, to get in the market right away before it takes effect.
So there's always a bit of that surge. But the issue that people haven't really spoken about, we've heard lots of talk about supply-side challenges in the real estate market, but there's been an overwhelming demand. And so if anything is going to be affected, it might temper that demand,  and that's what I think is going to happen.

The supply side issues are not going to be fixed overnight. It's been going on for so long, it'll take 10, 20 years to catch up.  By then, we'll be that much further ahead.

So this the demand side and I think that the hikes are going to temper that a bit, that's what it's going to do.

DANA: What other factors John do you feel will influence the housing market this year? So, we talked a little bit about interest rates and the stress test and the fuel prices and inflation. Is there anything else that people should be paying really close attention to? 
JOHN: Unfortunately, there's probably a couple of other things that I think we now have to pay attention to. You know, some of the strife going on in the world. What is that affecting? Well, wheat prices, you know, you wonder, why wheat prices? Well, Russia and Ukraine supply almost a third of the world's wheat exports. And so if that's interrupted, what does that do? Again, that all filters through into inflation and an additional pressures on the market. 
Right now Western Canadian oil is running north of $100 a barrel. So what does that do? Well, it makes it a whole lot more expensive to fill up. Again that filters through, just so many areas that affects all of us. And so I think that's going to, along with a little bit of an interest rate hike, temper demand.
I think there will be some pressure on that demand side. So, we may see a little bit more normalcy coming into the market which would be a great thing.

DANA: Should home buyer's or seller's be concerned with the interest rates coming? Just to circle back to the first part of our conversation, we know they're coming. How many is anyone's guess but we know it's more than one, and probably more than a few. Should that concern anyone who's either looking to sell their home or looking to buy one? 
JOHN: I don't think it has to concern them. I think this is we're relying on the expertise of excellent REALTORS® like yourself who have excellent advisors, be it mortgage professionals, or bankers. It's really important to get really detailed,  good information, interpret the data and then understand okay, if this is a short-term or long-term move how will that impact my next decision.
And so this is really where people need excellent advice and they need to also sort of hurry up and slow down and understand, okay, what is it we're dealing with? And does it make sense now to move forward?
We're still nowhere near, you know, the 11 or 12% I remember paying for my very first home purchase. We're so far off that. So, we just have to keep that in mind, I think, and not react without understanding what we're dealing with and getting good input and advice.

DANA: I've seen it with a lot of my buyers, they will see something like what happened last week with an interest rate hike and then my phone starts to ring because everyone wants to know what does it mean? And that's okay. So this kind of interview and this kind of a conversation will certainly help them.

But if we could just wrap it up with one last question, I'm sorry this is out of the field for you a little bit. But what advice would you give home buyers? I think they're the ones in the market suffering the most right now as sellers continue to do very well. But the buyers are many are frustrated and a little drained from the process. What advice would you give home buyers looking ahead this year? 

JOHN: Yes, you know, and that is the 30 million dollar question. And as someone with four adult children, who I would love to be able to help them all find something, you know, voice those same challenges of, what the heck, where do we go now? I don't want to move to the Northwest Territories. Lovely place, but my job and my work is here.
So my advice would be, number one, take the time to really research and understand what's going in the market, and don't rush to judgment. In other words, the new mantra about you can work from anywhere now, you don't have to work in an office. I would say, be very careful. These companies begin to understand that having their teams and people back in collaborating is something that's been missing, they will require people to come back.
So be careful about sort of running out to the country, first of all.

Second, the pre-construction new home build market is one to also think about, it's an area that's off market. And what I mean by that is, none of that data is available to be researched on MLS.
So again, having a professional who can sort of direct you to what's out there, what might be available. Maybe that's a purchase that is 6 months to 24 months out, but it might be the answer.

And then bringing in a good financial advisor, mortgage broker who can work with someone to say, okay, let's focus on a plan and look at what you're going to need to be able to put down.
And please don't go out and make crazy purchases or switch jobs in between because that'll be the end of that search. 
I say all of that to reinforce that really having the right person supporting them and it's never too early to start, you know. Get good advice up front early and maybe a year and a half later, you're making that purchase. Don't rush to judgment.

DANAMake sure you've got the right information. Take your time. Do your research and of course, so importantly, make sure you're getting advice from the right people.

JOHN: And take the time to get to know who you're working with and it's okay to say, you know what, I want to work with someone else. I mean, it's so important to really connect and trust in that person and that takes time. 
DANA: Nothing happens in five minutes. Well, John, thank you so much for joining us.

JOHN: My pleasure, and great to speak with you.

DANA: And thank you for all your guidance, I know everyone will find it very, very helpful.
JOHN: I hope so. 
DANA: Thank you again, John.

About John Lusink, President - Right At Home Realty, Inc.

John is President at Right at Home Realty Inc. With more than 35 years of experience in the real estate industry, John's background includes an award-winning commercial real estate sales career, management of corporate offices for one of Canada’s iconic real estate brands as well as ownership of a major residential real estate franchise.

Recently named a 2022 RISMedia Real Estate Newsmaker for his significant contributions to the industry, John is an active participant in organized real estate both as a past Director on The Toronto Regional Real Estate Board (TRREB) for six years and, most recently, as the Commercial Director on the 2018 OREA Board of Directors. While at TRREB, he served as the chairman of the Government Relations Committee for two years and was most recently Chair of the Finance Committee.