Is it a Good Time to Buy?
I may be biased (just a little bit, ha!) but if you ask me, it is almost always a good time to buy a home; depending on your intended purpose. Real estate historically has been a good long term investment strategy and one of the most impactful options when it comes to generating financial stability and wealth for yourself, your family, and even future generations.
Over the past year we have seen huge shifts in the marketplace due to factors such as the pandemic, inflation, and even geopolitical conflicts. In March of 2022, home prices across the GTA were at or near an all time high and interest rates were still very low. Fast forward to March 2023, and Home prices have fallen across the board while interest rates have shot up to combat economic inflation. So how do these changes effect the affordability of a home? It may seem counterintuitive, but on average, if you compare the two time periods (March ‘22 and March ‘23) it may be more favourable to buy a home in today’s market. Have a look at this example below:
Numbers above are based on a 5 year term.
Rates quoted may change or vary at any time and depend upon overall deal quality and qualifications.
Variances are rounded to the nearest dollar.
Based only on 39% GDS
This tool is for illustrative and educational purposes only.
In this example, we were looking at a couple buying a condo with the minimum amount down. We looked to compare what their situation would look like if they were to buy in March of 2022 when interest rates were lower, but prices were higher vs. now, where interest rates are higher, but prices are lower. In short, this is how the data rolled out:
Purchase Price: Less - The average price of a condo in this time period dropped 14.9%
Down Payment: Same - We used the same amount for the downpayment in both cases
Mortgage Amount: Less - The total borrowing amount is much lower. (-$120,870)
Insurance Premium: Less - The couple paid $4,835 less in mortgage insurance premiums
Total Mortgage Amount: Less - accounting for insurance premiums they saved $125,705 on the total borrowing amount.
Interest Rate: More - As we know, the interest rates have increased
Monthly Mortgage Payment: Less - Saved $115.44 on the monthly mortgage payment
Annual Household Income Needed to Buy: Less - In order to qualify for a mortgage in this example, the couple needed a household income of $162,553.54 in ‘22 as opposed to the $156,229.23 needed in ‘23.
As you can see in this example, the couple were in much better shape purchasing their condo now (even with the much higher interest rates!) than they were at this same time in 2022.
Don’t let negative news releases get you down!
‘Doom and gloom’ rhetoric frequently makes its way into the news cycle relating to the real estate market or the economy in general. it’s always good to remember that while the news may be somewhat informative, media companies are also trying to generate clicks/engagement/viewership. If you really want some insight into what your level of affordability is, reach out to your bank, mortgage broker and realtor. They can tell you exactly where you stand financially and help you achieve your financial/real estate goals.
Overall, high interest rates can make it more challenging for buyers to purchase a home, particularly if they are on a tight budget or uncertain about the future. As such, some buyers may choose to wait until interest rates are lower before making a purchase. I just wanted to highlight the fact that the decline in home prices in many cases has offset the increase in borrowing rates. There’s a good chance you will still come out ahead if you purchase a home today with a higher interest rate.
However, there has been some good news concerning the economy recently. Inflation has regressed over the past couple of months which means (if we’re lucky) we may start to see the interest rates adjust accordingly. Let’s hope for the best!
