According to the Canadian Real Estate Association, the Spring market is anticipating a drop in home prices edging down approximately 6% from 2022, putting the average home price at $662,103 in 2023. The downward trend stems from rising interest rates and continued uncertainty in the marketplace.
In some cases, sellers have taken their homes off the market in the hopes that prices will rise again; meanwhile, potential buyers are biding their time for interest rates to drop. Due to this, home prices may continue to see reductions throughout 2023, while interest rates are not expected to drop until 2024.
While not a particularly buyer-heavy market, there are still individuals who will be looking to make a move, upgrade/downgrade or simply relocate.
Are You ready?
1. Your income is stable: For most first-time home buyers, purchasing a house indicates that you can make regular payments to service a mortgage. Accordingly, you should make sure you have a secure and steady flow of income to make these payments over the length of your home loan period. While this is often thought to mean that you work a full-time job, many self-employed Canadians also have stable incomes – and alternative lenders, such as Home Trust, are willing to listen to their unique financial situations.
2. You are ready with your down payment: Having enough money on hand for a down payment is important because the amount will impact the type of house you can buy, the amount you need to borrow and the range of financing options you qualify for.
3. You found an area you can grow in: Buying a house means putting down roots, so you need to make sure that you can buy a house in an area that suits your needs and lifestyle. You should also be able to envision yourself living in that area over the next five to 10 years.
4. You feel comfortable managing your debt: Paying for a house involves having the discipline and commitment to stick to a budget. Take some time to track your spending habits over a couple of months to find out if you are comfortable setting aside roughly 30% of your income to pay for your mortgage debt.
5. You have an emergency fund on hand: Owning a home means that unexpected home maintenance expenses, such as plumbing and electrical repairs, could eat into your budget. So having an emergency fund on hand to cover six months’ worth of expenses will allow you to cover these unforeseen costs.
If you feel that these signs point to ‘yes’ or you have more questions about purchasing (or selling) a home this Spring, don’t hesitate to reach out to me directly for expert mortgage advice!
Economic Insights from Dr. Sherry Cooper
The Bank of Canada was the first major central bank to hit the pause button on rate hikes in late January. Given the slowdown in inflation in the recently released January CPI, The Bank of Canada will refrain from hiking interest rates this month.
That is welcome news for homeowners with adjustable-rate mortgages whose rate has risen 425 basis points in less than a year.
Variable-rate mortgage holders with a fixed payment have largely hit their trigger points if they bought in the past couple of years. While their monthly payments have not risen, many are not covering the higher interest costs on their mortgages. Hence their principal outstanding is rising. Little is known about how the lenders will handle that when it comes time to renew.
Housing starts also plunged 13% month over month in January.
Bank earnings are under pressure with higher taxes and capital requirements, and the federal financial institution regulator is looking to tighten mortgage terms somehow. More will be known in mid-April when the comment period is over.
Other sectors of the economy remain relatively robust. Labour markets continue to be very tight as the unemployment rate is near record lows, and job vacancies—though down a bit—remain high. This has boosted consumer spending despite inflation.
We expect a soft landing in the Canadian economy this year—a mild contraction in Canada in 2023 Q2-Q3. This is one quarter later than the Bank of Canada projected in their most recent Monetary Policy Report.
The economy is resilient, and inflation is falling, but the central bank is unlikely to cut rates this year. When rates begin to fall in 2024, they will remain well above the pre-pandemic level of a mere 1.75% for the overnight policy rate. Inflation in the decade before the pandemic averaged less than 2%. Over the next decade, inflation is likely to be higher, especially as on-shoring and the reduction in globalization will be much less disinflationary.
Can’t fit banks tough guidelines?
Now the next question, do you qualify with the banks? Not all of Us have the best credit, but All of Us have the right to own a Home. You too.
You want to buy a house, but can’t fit banks tough guidelines? Our well proven private “mortgage bundle” solution can be the answer to Your prayers.