Purchasing a home is a very big financial decision, and timing often plays a crucial role in the process. Many potential homebuyers in our province often contemplate whether they should wait for interest rates to decrease before taking the plunge into homeownership. While the temptation to time the market is understandable, there are many reasons why waiting for lower interest rates may not be a smart move… This may sound strange to young first time home buyers, but lets explore the 3 key reasons why it might not be prudent to delay your home purchase in the hopes of securing a better interest rate.
1. The Unpredictability of Interest Rates:
One of the primary reasons why waiting for lower interest rates might not be a smart choice is the obvious unpredictability of interest rate movements. Interest rates are influenced by a complex web of economic factors, and trying to predict their future direction accurately is a daunting task even for the everyday economist. While experts and analysts make educated guesses, even they can’t guarantee when rates will rise or fall.
In Quebec, where the real estate market can be competitive, delaying your home purchase to chase lower interest rates might mean missing out on excellent properties. Furthermore, a minor decrease in interest rates might not significantly impact your monthly mortgage payment, especially when weighed against the opportunity cost of waiting. This means that if your current average home is asking $600,000 and you are trying to time an interest rate decrease… Chances are it will not drop more than .25% per quarter at best. This means that for the rate to have any sort of significance shown in your payments, you would need to wait at least 3-4 quarters.
2. Rising Real Estate Prices:
In Quebec, as in many parts of the world, real estate prices have a tendency to increase over time while money decreases in value (inflation). While you wait for interest rates to drop, you might find that the homes you are interested in become more expensive over the same period. Even a small increase in home prices can offset any potential savings from lower interest rates. This means that the longer you wait, the more you may have to pay for the same property!! An even more daunting thought is that demand will increase as interest rates go down… This means that if you wait for the rates to drop from 6% to 4%, there will be more competition in the market for buyers (affordability = more active home buyers shopping) which, when coupled with low inventory creates a very strong sellers market making it almost illogical to wait for rates to drop as the chances of paying a higher price are almost guaranteed. Homeownership often builds wealth over time, so postponing your purchase can also delay your journey towards building equity and benefiting from property appreciation.
3. Lost Time and Opportunity:
Time is a valuable asset in the world of real estate. The longer you wait to buy a home, the longer you delay the potential benefits of homeownership. Homeownership can offer stability, tax advantages, and the opportunity to build wealth through property appreciation. Delaying this transition can mean lost opportunities to enjoy these benefits. Often times, when one delays their purchase of a home due to high interest rates, they forget to calculate that although they are saving money monthly on interest, they are losing out on appreciation of that same immovable property. Imagine thinking to yourself that saving $500/Month on interest by waiting for the rates to drop = 6,000$ annual savings, at the end of that year, take a look at the average $600,000 home and ask yourself, has it gone up by 1% or more in value? – The answer is almost certainly yes… which means your interest payments would have been offset by your appreciating asset and in a 12 month span you would have probably made more than the 6,000$ you saved. Additionally, if you are currently renting, you might be paying rent that could otherwise go towards building equity in your own home. While you wait for lower interest rates, you are essentially paying someone else’s mortgage instead of investing in your future.
While it’s natural to want the best possible deal when buying a home in Quebec or anywhere else, waiting for interest rates to drop is a strategy fraught with uncertainty and potential drawbacks. The unpredictability of interest rates, rising real estate prices, and the lost opportunities associated with delay can outweigh the potential benefits of lower rates.
Instead of trying to time the market, it’s often smarter to focus on your financial readiness, long-term goals, and the current state of the local real estate market. By working with a knowledgeable real estate agent and a trusted mortgage professional, you can make an informed decision about when to buy a home that aligns with your financial situation and aspirations. Ultimately, the right time to buy a home is when it’s right for you, rather than solely based on interest rate fluctuations.
