The Waiting Game: Interest Rates vs. Real Estate Prices in Canada
In the Canadian real estate market, many potential buyers are strategically waiting for a drop in interest rates before making a purchase. While the allure of lower borrowing costs is clear, the potential savings must be weighed against the risk of rising property prices.
The Impact of Interest Rates
Interest rates directly affect mortgage qualification and affordability. To qualify, buyers must pass a stress test at a rate 2% higher than the actual rate. Even if you qualify, the monthly payments must be sustainable over the long term. While some buyers are holding out for lower rates and property prices, this strategy comes with significant risks. If rates do not drop as expected, or if property prices rise, waiting could prove to be costly.
The Effect of Falling Rates on Demand
A key concern is that lower interest rates could increase demand, driving up property prices. The Bank of Canada is carefully monitoring affordability issues, leaving buyers to wonder whether they should buy now at higher rates or wait for rates to drop. The decision is complex and depends on various market conditions.
Comparing Calgary, Vancouver, and Ottawa
Vancouver
Vancouver’s market has been characterized by high appreciation and competitive trading. Despite high interest rates, average prices have remained stable, with some exceptions in the condo market. Inventory recently increased by 40%, but it is unclear if this is a trend. Vancouver’s constrained geography and high demand suggest that prices will continue to rise in the long term.
Calgary
Calgary offers more affordable options, with single-family homes available for under $600,000. The city’s economy, heavily tied to the oil and gas sector, has faced challenges but remains attractive to buyers from more expensive markets like Vancouver and Toronto. Calgary’s real estate market presents a significant opportunity for those looking to invest in a more affordable yet promising environment.
Ottawa
Ottawa’s real estate market has remained stable despite rising interest rates, supported by the prevalence of the Federal Government sector. Similar to Calgary, Ottawa offers many affordable options relative to the markets in Vancouver and Toronto. The average home price in the first quarter of 2024 is $757,700, up 4.4% year-over-year. Ottawa’s market stability makes it an attractive option for buyers looking for affordability and growth potential.
Conclusion
A home purchase is a long-term investment, and acting sooner rather than later might be wise if you are financially ready and qualify for a mortgage. Current interest rates are expected to go down, making now an opportune time to buy. For example, a $700,000 property with a 10% down payment at a 5.39% fixed rate results in a $3,800 monthly payment. If rates drop to 4.39% next year, the payment would be $3,450, saving $4,200 annually. However, if property prices rise by 3.5%, you could gain $25,000 in equity. This is a modest increase, with the Bank of Canada anticipating the average home value to go up around 9% this year. The potential gain outweighs the savings from lower rates.
Connect with a mortgage agent today to get banks competing for your mortgage. With access to multiple lenders and a personal touch, we ensure that your mortgage fits your financial situation perfectly. Investing now could be a prudent step toward securing your future. Scheduling a call and getting a verified pre-approval for a mortgage is free. If you’re curious about what the market might hold for you, give me a call and we can get started.
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