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When is the RIGHT TIME to Buy a Home?
August 31, 2023 | Posted by: Bailey Simner
When is the RIGHT TIME to buy a home??
You've diligently accumulated funds for a down payment, secured a solid credit score, ensured stable employment, and even set aside money for closing costs and relocation expenses. All green lights are flashing – you're fully prepared to dive into the housing market!
Undoubtedly, your journey to this point has been marked by hard work, and your enthusiasm for the prospect of homeownership is off the charts. Therefore, the last thing you'd want to hear is that it might be prudent to temporarily defer your home search and wait for optimal market conditions.
But how long is this waiting period supposed to be?
The ideal objective is to purchase a home during a phase of correction in the Canadian housing market, ideally when mortgage rates have dipped. Both the Canadian Real Estate Association (CREA) and the Canada Mortgage and Housing Corporation (CMHC) concur that home prices will experience further declines in 2023 due to a scarcity of supply and affordability challenges stemming from recent Bank of Canada (BoC) interest rate hikes (with another expected hike in September). This scenario presents a positive opportunity for potential homebuyers looking to capitalize on relatively lower – or at least stable – home prices.
In terms of mortgage rates, once inflation reverts to the BoC's targeted 2%, both CREA and CMHC foresee a reversal of the substantial rate hikes that have been implemented. This correction should lead to a decrease in mortgage rates, alleviating some of the financial strain. This might sound like encouraging news, right? However, it's anticipated that the reduction in mortgage rates will stimulate a resurgence in home prices and sales activity around the middle to late part of 2024. Additional factors in the mix include robust immigration, the anticipated removal of the current ban on foreign buyers at the close of 2025, and insufficient new home construction. These elements are likely to further drive demand and subsequently lead to price hikes in 2025.
So, let's recap the situation. Elevated rates exert a cooling influence on home prices, rendering homeownership somewhat more attainable. Yet, higher mortgage rates equate to larger mortgage payments, which might strain your budget. As mortgage rates recede, your mortgage payment becomes more manageable. However, the lowering of rates spurs activity in the housing market, causing home prices to climb.
It might appear as if there's no clear winning strategy here. The truth is, timing the market can be a dizzying endeavor. Similar to any significant financial decision, it's wise to seek advice from an expert who can evaluate your specific circumstances, objectives, priorities, and provide some clarity. Purchasing during a period of low home prices and high mortgage rates may not seem astute, but as mortgage rates eventually decrease, you'll find yourself in the advantageous position of having extra funds at your disposal. Since you've adapted to the higher mortgage payment, you can maintain the same budget allocation and allocate the surplus funds toward mortgage prepayment, progressing toward the goal of mortgage-free status.
Employing a 'wait and observe' strategy could yield favorable outcomes in a few years. During this interval, you can maximize the tax advantages of the First Home Savings Account, coupled with the RSP Home Buyers' Plan, to further augment your down payment, thereby reducing the mortgage amount you'll require when you're prepared to make your purchase.
Owning a home signifies a significant milestone, and the sense of accomplishment that accompanies homeownership is a reward in itself. Naturally, all factors should be taken into consideration, and emotional impulses shouldn't solely dictate financial choices. An indispensable element of any home acquisition is a plan encompassing both short- and long-term perspectives.
This is where your Invis mortgage professional can play a pivotal role in guiding your homebuying journey.
Reach out today to get the conversation started! Your Mortgage Begins Here!
