Higher Rates; Both Sides of the Fence

Interest rates are currently high by design.  They need to be.

Inflation in Canada peaked at 8.1% earlier this summer.  By August, we reduced it to 7%, but the target remains 2%.

The elevated cost of lending has a cooling effect on the economy; by increasing the cost of borrowing, disposable income & confidence is reduced, thus limiting the growth in consumer spending. Higher rates have a profound effect on the housing and automotive industry.

This being said, don’t allow interest rates to be the sole determinant on whether to buy a property, or not.

For the past two years, it’s been challenging to get your mitts on a home. Rates were historically low and the pandemic created unforeseen social challenges that resulted in demand excessively outnumbering supply.
At this present time, it’s a far more attractive environment to purchase a property.

1) BREATHE, AT YOUR OWN PACE. It’s a more comfortable buying experience when you’re not obligated to make overnight decisions.
2) LESS LIKELIHOOD TO BE IN MULTIPLE OFFERS; you have the opportunity to negotiate and avoid overpaying (haven’t heard that in 2 years)
3) LESS COMPETITION/HIGHER INVENTORY: greater likelihood to obtain the home of your dreams
4) LOWER PRICE; as well as a lower down payment (maintain more liquidity for comfort, projects or other investments)

Lower price, can you elaborate?

In April 2022, the 5-year fixed at a big Canadian bank was 2.69%.

Fast forward to September 2022, we’re sitting at 5.2%.

Let’s consider one of our favorite boroughs, Riviere Des Prairies in Montreal East. Since the April 2022 peak, prices have corrected 16%.

An April $600,000 home, that reduced to $502,000 in September, is $213 more a month, but after a 5-year fixed term, you have a $57,000 lower balance to pay on the September purchase. Don’t forget that your down payment is $10,000 less too (Our trusted mortgage professionals can help you strategize with selecting the most appropriate term and product).

We need to let go of the idea that there is a “perfect” time to buy a home, and instead focus on the right timing for themselves and their family.  We’re all at different stages of our lives, our careers and our relationships, and those can affect the requirements for what we are looking for in a house, and when we are able to make a move.

From an investment perspective, the best way to not stress about timing the market is to buy and hold. In the long run, the exact time you purchase in the real estate market cycle is less important than how long you hold onto your house. It isn’t the market peak that would make selling your home a loss; it is selling a home so quickly after you bought it. Even if you had bought when prices were low, it still takes time to make up the one-time expenses from buying: closing costs, welcome tax, and then selling; closing costs, possible mortgage penalties and agent remuneration.

A good value investment is always safe when you play the long game.