Since the GTA real estate market has been unstable for more than a year, it is not surprising that many prospective homeowners have put their home searches on hold. Here are five reasons to think about purchasing right now if you’re still debating:
Reason 1: Your budget for a home purchase shrinks as interest rates rise
Even the experts did not anticipate the Bank of Canada raising interest rates nine times in 15 months, from 0.25% in March 2022 to 4.75% in June 2023. This is despite the fact that nobody anticipated the record-low interest rates during the pandemic to remain so low permanently.
Budgets for buying a home shrink when loan rates rise. This graph was posted online by MortgageOutlet.ca’s Elan Weintraub. It demonstrates how a $2,500 monthly mortgage payment has reduced in its borrowing capacity:
At a 2% interest rate, a $2,500 monthly payment allowed you to borrow $590,000. At a 6% interest rate, that $2,500 payment decreases your home buying budget by $200,000.
This implies that a buyer who cannot or does not want to increase their payment will have to make more concessions. Buying in a new neighborhood or community, or making concessions on features like parking or a completed basement, may be necessary. Some purchasers may not be able to purchase anything at all if their ability to obtain a mortgage is significantly reduced.
Why Purchase Now?: The Bank of Canada has made it clear that it intends to use interest rate increases as a weapon to control inflation and has hinted that rates may rise once more.
Reason 2: It becomes more difficult to be approved for a mortgage when interest rates rise.
Home buyers in Canada who are applying for mortgages must pass a stress test to ensure they will still be able to afford their property if interest rates rise. The greater of the benchmark rate, which is now 5.25%, or the actual interest rate plus 2% is therefore used by your lender to determine how much you can borrow.
The Stress Test’s Effects on Fixed-Rate Mortgages:-
The 5-year fixed mortgage stress test required a buyer to be eligible for a mortgage at 4.79% in January 2022 (the real rate of 2.79% plus 2% equals 4.79%). A buyer must meet the criteria for a 3-year fixed-rate mortgage in June 2023 at 7.39% (the real rate of 5.39% + 2%).
The stress test’s effects on variable rate mortgages:-
A buyer looking for a 5-year variable mortgage in January 2022 had to meet the qualification rate of 3.79% (the real rate of 1.79% + 2% = 3.79%).
The qualification rate for the same buyer in June 2023 who wants a 5-year variable mortgage is 8.25% (6.25% + 2% = 8.25%).
Why Purchase Now?: You won’t have to qualify at a new, higher stress rate if you buy and close on a home before your pre approval expires and you are already pre approved for a mortgage. If your pre-approval is outdated, speak with your lender.
Reason 3: Prices are rising and buyers are returning.
The Toronto real estate market has essentially recovered, despite the first sharp decline in prices brought on by the initial interest rate increases in 2022. Since last summer, we have seen monthly price increases.
As more buyers who put their searches on hold in 2022 restart their searches, the real estate market will become more competitive, driving up prices. Since the spring, bidding wars for desirable properties or desirable areas have become common.
The average price of a property increased by 3.5% in May 2023 compared to April 2023.
In Toronto, this means that in just one month:-
- A detached home typically sold for $125,380 more.
- A semi-detached property sold on average for $72,359 more.
- Townhomes on average went for $14,623 more.
- The typical condominium went for $32,998 more.
Why Purchase Now?: The majority of analysts anticipate that Toronto home prices will rise further and that the most recent increase in interest rates would have little (if any) effect on pricing.
Reason 4: More houses are up for sale. More housing equals more options.
Sellers have been reluctant to advertise their houses for sale due to the market’s instability during the past 15 months, which is understandable. They have been on the fence, just like so many buyers. However, now that summer has arrived and the sellers are more optimistic about the market, they have begun to put their properties for sale. Thus, buyers will have more options, which should result in less fierce bidding wars
Why Purchase Now?: Expect pricing to remain the same while there’s more supply of homes for sale, it’s still not enough to meet the demand, But at least you can choose from more houses!
Reason 5: Life!
The majority of people purchase a home out of necessity, not because of the interest rate or the state of the economy. Most moves are prompted by a change in lifestyle, such as a new career, a family, a divorce, a move to or from the city, etc.
Why Purchase Now?: Your home requirements have altered, and now is the ideal time for you.
