(Written June 5, 2025) Less than an hour ago Governor Tiff Macklem at the Bank of Canada announced interest rates would remain consistent in response to an economy that is “softer but not sharply weaker”. Macklem reported “the extreme financial turmoil we saw in April has moderated and stock markets have recovered their losses…” The effects of today’s increases to the aluminum and steel tariffs from south of the border remain to be understood. Macklem reports second quarter analysis is expected to be weaker with many businesses scaling back on hiring.
In 2019, I wrote the rebuttal below, which was published in Ontario Dentist, the Journal of the ODA. My experience at that time was that increases to interest rates were a major contributory factor to practice values; something that was unacknowledged at the time (if you can believe it). There were appraisers out there stating that interest rates did not have an impact on practice values because of the recession-proof nature of dentistry and strong demand for a practice in the marketplace. That belief for some appraisers held firm right through the rate increases we saw after March of 2022, when the prime rate of interest went from 2.45% to 7.2%. Some of those that disagreed with my position referred to me as an “interest rate amateur”.
As the market would have it, those rates saw the market cool and buyers back off with financing costs that eroded a reasonable take home income. It turns out every buyer wants to take advantage of 100% loan-to-value financing offered by the banks. And since the banks carry the risk on a practice loan, they did in fact see a connection between rates and values.
Today, banks remain cautious, highly scrutinizing, but willing to finance at 100% loan to value. But the details matter: The lease, the cash flow, the opportunity demonstrated, and the buyer’s unique capability, among others. If you’re a buyer and you have equity, investing in your acquisition is the best investment you can make. Not only does it allow you to pay top dollar for the practice you’ve been waiting for but it can get you closer to financial freedom.
We’ve lived through an exhausting amount of change in the past 6 years since that rebuttal was written. But we can be certain that dental practice values are in fact influenced by interest rates – Less so from the standpoint of patient spending and practice production, but more from the position of buyer affordability.
Sean
DDS, Interest Rate Amateur
