Is there a “perfect time” to purchase a home?
You’ve saved enough for a down payment, your credit is in ship shape, you are gainfully employed, and you’ve even saved enough for closing costs and moving expenses. All systems go. You’re ready to get into the housing market!
No doubt, you worked hard to get to this point and your excitement at the prospect of buying a home is off the charts so the last thing you want to hear is that you should hold off on home shopping for now and wait until market conditions are perfect.
Wait?!? But how long?
The preferred goal is to buy at the bottom of the Canadian housing market correction and secure your mortgage when rates drop.
Both the Canadian Real Estate Association (CREA) and the Canada Mortgage and Housing Corporation (CMHC) agree that home prices will continue to decline in 2023 due to lack of supply, as well as affordability issues caused by recent Bank of Canada (BoC) rate hikes (with another expected rate increase in September). This is good news for homebuyers who want to take advantage of lower – or at least stable – home prices.
As for mortgage rates, once inflation returns to the 2% target set by the BoC, both CREA and CMHC are forecasting a reversal of the massive rate increases imposed, which should bring mortgage rates back down to less stomach-churning levels. More good news, right? Well, it’s expected that the decrease in mortgage rates will spark a rebound in home prices and sales activity in mid to late 2024. Other factors at play are booming immigration, the elimination of the current foreign buyers’ ban at the end of 2025 and inadequate new home construction, all of which will likely fuel further demand and price increases in 2025.
So, let’s recap. Higher rates have a cooling effect on home prices, making it a bit more affordable to buy, but a higher mortgage rate, of course, means a higher mortgage payment which you may find difficult to live with. Mortgage rates come down, making your mortgage payment a little easier to manage but the low rates have a stimulating effect on the housing market which means home prices go up.
It sounds like a no-win situation. The reality is, timing the market can make your head spin. As with any major financial decision, it’s best to consult with an expert who can review your situation, your goals, priorities etc. and bring some clarity to the picture. Buying when home prices are low and mortgage rates are still high doesn’t sound like a smart move, but mortgage rates can eventually come down and when they do, you’ll find yourself in the enviable position of having “extra” money to play with. Since you’ve already become accustomed to the higher mortgage payment, you can maintain the same budget amount and squirrel the extra funds into a mortgage prepayment and work toward the goal of becoming mortgage free.
A “wait and see” strategy could pay off in a few years and in that time, you can maximize the tax benefits of the First Home Savings Account, combined with the RSP Home Buyers’ Plan to further increase your down payment, thereby reducing the amount of mortgage you’ll require when you are ready to purchase.
Owning a home is a huge milestone and the sense of accomplishment you’ll derive from becoming a homeowner is its own reward. Naturally, you should consider all factors and never make any financial decision based purely on emotion. An essential component of any home purchase is a plan with both a short- and long-term outlook. This is where your Invis mortgage professional can play a crucial role in your homebuying journey.