In an effort to tame inflation, the Bank of Canada (BoC) has increased its key policy rate ten times since March 2022, bringing it to a 22-year high of 5%. The increases have squeezed the once-hot Canadian housing market, with many buyers hoping to wait it out; however, we’re here to show you why it still might be a good time to buy. Although it may seem counterintuitive, there are actually several positives to think about regarding homeownership when interest rates are this high. So today, our experts at Soni Chachad Real Estate have compiled a list of 5 benefits of buying when rates are high, and we will be exploring a perspective you may not have considered from a licensed realtor.
1. Less Competition
For starters, rising interest rates can mean less competition within the real estate market. You might be wondering, “How is this possible?” Well, when interest rates are low, consumer borrowing power increases, and more buyers flood the market, driving up demand, prices, and competition (like we saw in the first few years of the pandemic). But, when interest rates are higher (like they are today), consumer purchasing power decreases, and fewer people are eligible for mortgages, meaning there’s less competition for the homes on the market. Therefore, as long as you can secure a mortgage, you can enjoy shopping around without worrying that a home will skyrocket in price due to buyer demand. Unfortunately, the flip side is that rising interest rates make houses more expensive for buyers. So then, how do you still ensure you get the home you want within your price range?
2. Potential Downward Pressure on Sales Prices
With the BoC’s rate hikes rolling around in the back of your mind, you’re probably concerned about finding the home you want for a price you can afford. And while it’s true that higher rates equal higher payments, there’s also something else to consider: when fewer people can afford to buy in certain areas, it means that sellers will be forced to become more flexible with their pricing. Not only that, but you won’t have to stress about a home getting multiple offers above its asking price, which was a trend for the last few years before the BoC started increasing its rates in early 2022. This potential downward pressure on sales prices means you gain some negotiating power as the buyer and can (hopefully) get the home you’re dreaming of while sticking within your budget.
3. Reduced Buyer Risk
A third benefit that you may have yet to consider is that with higher interest rates comes reduced buyer risk. With extremely high buyer competition during the 2020-2022 period, many buyers were waiving offer contingencies in hopes of securing a better chance of being chosen by the seller. The problem is that waiving these contingencies also waives two important things: the inspection and the appraisal. When you waive the inspection and the appraisal, your buyer risk shoots way up because you’re missing out on key pieces of information that can make or break a sale. However, with the market evening out (thanks to these rate hikes), we’re seeing these inspection and appraisal contingencies re-emerging, thereby reducing your risk as a buyer.
4. Use Inflation to Your Advantage
One thing that people often forget is that real estate can hold its own against inflation through appreciation. As a recent article in Forbes points out, while inflation punishes those who wait, it rewards those who invest in appreciating assets like real estate. And this is what many people who purchased homes between 2020 and 2022 are experiencing right now, particularly those who are locked into a fixed-rate mortgage. But that’s not the only way to use inflation to your advantage in today’s market. Consider this, as the value of the dollar declines, so does the value of debt, meaning inflation can potentially make owning a home and paying a mortgage more affordable for some people than paying rent. Especially when you consider the fact that many real estate investors and landlords are capitalizing on inflation and this increased demand by charging higher rent while retaining lower mortgage rates. So, if you were considering transforming your basement into a rental suite, now might be an ideal time!
5. Refinancing Options
Finally, (and potentially the most important thing to consider when purchasing in today’s market), buying a home at a lower price but at a higher interest rate can be workable if you can refinance the mortgage in the future to reduce your rate. Although taking out a mortgage may initially seem like a set-in-stone thirty-year commitment, interest rates are temporary and refinancing options are available. Of course, there are no guarantees about what the future holds, but you may consider refinancing your home once mortgage rates drop (which the BoC is predicted to start doing in early 2024). By doing this, you’ll not only have received the benefit of buying at today’s lower prices but then you’ll be able to reduce your mortgage payments by refinancing to a lower rate in the future.
Final Thoughts
Ultimately, although it may seem illogical at first, there are several benefits to buying a home in today’s housing market. Yes, rates are higher than we’ve previously seen. Yes, that means you’ll have a tougher time securing a mortgage. And yes, that means your payments will be higher – for now. However, by taking advantage of the current real estate landscape, you can enjoy less competition, potential downward pressure on sales prices, and reduced buyer risk. Not to mention, you can learn how to use inflation to your advantage and opt for refinancing options in the future. So, no matter what you decide, we hope this article gave you a new perspective on why now is a good time to consider jumping into homeownership.
If you’d like further information or if you’re searching for an experienced, reputable realtor in the GTA to represent you as a buyer or seller in your next home transaction, be sure to check out my featured listings and do not hesitate to reach out to me directly!
