Have you thought about buying a new home but are feeling discouraged by the fierce competition and out-of-control prices? If so, you’re not alone. Property values have soared all over the country, and the average cost is higher than ever.
The Bank of Canada introduced a record low interest rate at the beginning of the pandemic to try to stimulate the economy. This added fuel to an already hot seller’s market.
However, over the last month, there have been some changes.
The great news is that it is a better time to buy now than it has been for at least two years. Are you thinking of taking the plunge? If so, these resources can help:
- The Best Burlington Condos for First Time Buyers
- First Time Home Buyer Grants in Ontario
- What You Need to Know Before You Buy Real Estate
The low interest rates were only a temporary solution. In 2022, we have already seen two increases. What will happen to the real estate market as the interest rates rise? No one knows for certain, but here’s what we have noticed so far:
More Listings Are Available
If you tried to buy a house three months ago, you would have faced fierce competition. There are far more people out there looking to buy than homeowners who are willing to sell. Even those who wanted to sell hesitated to put their house on the market for fear of not being able to find a new place.
This competition resulted in many multiple offer scenarios and even triggered bidding wars. Buyers tried everything to find a suitable home, from dropping off letters around the neighbourhood to submitting bully offers on the few listings they could find.
Now, we’ve just entered the Spring market, and for the first time in years, more listings are available. The scales haven’t tipped completely. The market still favours sellers, but it is slightly less competitive. Not every house receives multiple offers, and the percentage of “sold over asking” has decreased. In rare cases, some homes don’t sell at all and are pulled off the market.
Will this trend continue? It’s impossible to say, but the market may become more balanced if there is another interest rate hike this June.
Why Do Interest Rates Affect the Market?
When interest rates are low, the cost of borrowing decreases. Low rates make it easier for some people to purchase houses that would otherwise be out of their budget. When you’re talking about a mortgage loan of hundreds of thousands of dollars, any change to the rate can affect your payments.
As rates go up, the higher cost of borrowing will make it more difficult for some buyers to qualify for financing. Others might drop out of the market to ensure they don’t get in over their head financially. The current inflation rate and high cost of living may also make some potential buyers more reluctant.
Good And Bad News For Buyers
The good news is that with fewer people searching for properties, there is less competition for those still intending to buy. The bad news, at least for now, is that there doesn’t seem to be any sign of significant price drops. Many analysts predict that the out-of-control price increases will slow down, and buyers won’t have to bid as far above asking.
However, the market will continue to favour sellers for the foreseeable future. You have a better chance of finding your ideal home now than you did even a few months ago, but you are likely to pay a premium price for it.
Financing Options to Protect You From Rising Interest Rates
The Bank of Canada is expected to make another announcement about interest rates in early June, which is causing a bit of alarm in the market. However, there really is no cause for concern. The rates are still much lower today than they have been in decades.
If you bought a house in the lower or middle of your budget, you have very little to worry about. You may need to readjust your budget to allow for a slight increase in your monthly payments.
What if, like many people, you had to buy a home at the high end of your budget? You should talk to your financial advisor or accountant, but options are still available to keep your payments affordable.
- You may be able to keep your monthly payments the same. The bank will adjust the ratio of interest to the principal. It will take longer to pay off your loan, but you don’t have to worry about fluctuating monthly payments.
- Leave room in your budget to allow for rising interest rates but pay off your mortgage faster.
- If you are up for refinancing, choose a fixed rate to protect you from any future changes.
In addition to flexible payment options, the stress test is designed to ensure that you will not encounter financial difficulty even as interest rates rise.
Find out more about the new rules for the stress test here.
Homeownership is becoming more attainable thanks to more stringent regulations and the abundance of financing options, and the default rate for mortgages in Canada is extremely low.
Are you a first-time buyer hoping to purchase a new home soon? Our “First-Time Home Buyer” webinar will guide you and answer your questions. Sign up for free here.
