To buy a house or not buy a house in the current market is something most first time buyers and real estate investors in Canada are debating. With record high mortgage rates and home prices even within the last year alone, whether or not you're ready for a home purchase isn't as straightforward as it may appear to be.
To learn more about whether you should buy a house now or wait, keep reading!
Is now a good time to buy a house in Canada?
Whether or not it's a good time to buy a house in Canada right now really depends on your personal financial situation. Here is why you might want to consider getting into the market right now if you can:
The likelihood that mortgage rates will drop
If mortgage rates fall steadily over the next couple of months and into the fourth quarter or 2025, home prices will inevitably increase. While a lower interest rate means lower monthly payments, you'll have to put more of a down payment on your property in the foreseeable future.
Supply and demand of housing
Canada inevitably has a housing shortage. So, even though the market weighs heavily in favour of sellers right now, a shift to a buyer's home market may not benefit you if home prices decrease. You'll likely still deal with competition for homes as more people will be able to afford to buy, compared to right now.
Local market conditions
Check to see what the prices are for the homes in your preferred neighbourhoods. If you notice pricing increasing steadily, it may be worth purchasing a home now, rather than waiting for them to increase further.
What is a buyer's market?
If you're interested in the real estate market, you've likely heard the term buyer's market. But what exactly does it mean? There are a couple of characteristics potential buyers should look out for in the local real estate market:
Higher inventory
In this type of market, there will be more homes available to purchase, than there are individuals looking to buy a house. Because there is less competition, the purchasing power shifts to home buyers.
Home listings stay in the housing market for longer
Because home buyers have the buying power, homes tend to stay on the market for longer than usual as many buyers will use this opportunity to be pickier when purchasing a property.
Lower home sales
As the housing market is plentiful and there is competition between sellers, home prices tend to be lower, with many owners reducing their asking price to attract potential buyers to their listing.
Better negotiating power
In this type of market, buyers will have the upper hand when it comes to negotiations, which could allow them to get a better deal on their home, gain perks, and other incentives.
What is a seller's market?
In contrast, a seller's market refers to market conditions where there are not enough homes available to meet the demand for housing. The characteristics of these market conditions include the following:
Low housing inventory
Because there are fewer houses available for sale in the market than there are potential home buyers, these favourable conditions highly benefit sellers compared to first-time buyers.
Shorter time on the market
In this housing market, homes rarely stay on the market for long, and there are often bidding wars between multiple buyers.
Higher home prices
As there is more competition between buyers, home prices can skyrocket quickly. It's also likely that sellers will receive multiple offers on their home, enabling them to sell well above their asking price.
The bargaining power goes to the seller's
Because the housing supply is minimal, buyers will have less power in terms of negotiating. They will likely have to deal with bidding wars, be less choosy when it comes to a property, waive contingencies, and sacrifice seller incentives.
What is the best time to buy a house?
The best time to buy a home in Canada depends on when you feel you're ready to do so, along with how the market is doing. It really is a balancing act between being ready financially and whether the market is in a favourable condition for buyers.
We suggest taking a look at local listings to see whether the home prices are increasing or decreasing over time. It would be best if you also kept an eye on interest rates, as this will directly impact your mortgage payment. New listings come onto the market each and every day. So, if you believe you're ready to take the next step financially, have job stability, have been pre-approved for a mortgage, and have fallen in love with a property in your area, congratulations! You are well on your way to being a homeowner!
How do I know if I'm ready to buy a house?
Determining if you're ready to buy a house is a personal finance decision that should not be taken lightly. In fact, there are numerous factors you'll want to consider before getting into the housing market in Canada. Take a closer look below:
Your financial readiness
To ensure that you can qualify for a loan with a loan officer, you should ideally have a minimum of 20% in your savings to cover the cost of your down payment. With current interest rates and house prices, anything lower will make your monthly payment on your mortgage unrealistic.
This brings us to our next point, which involves your credit score. A good credit score will help you get a good mortgage rate. If you have a lot of debt and do not make payments on this debt, your chances of being approved for a mortgage are slim. Ask yourself whether buying a property right now is worth increasing your overall debt or whether you should take practical steps to improve your credit score before you consider becoming a homeowner.
Further, beyond a down payment, you'll also want to have an emergency fund in place that can cover anywhere between 3 to 6 months worth of living expenses and a stable employment income to ensure that once you purchase your home, you're able to maintain it accordingly.
Your individual readiness
Beyond financial considerations, you need to also check in with yourself to determine whether you're ready to take on the responsibility of being a homeowner. Owning property is not easy. It can also keep you in one location for a long time. If you're ready to set down roots and don't see yourself wanting to move anywhere else for at least five years, buying property can make a lot of sense. In contrast, if you see yourself wanting to travel often and make other lifestyle choices in the meantime, it may be worth it to hold off for a bit.
Another thing you'll want to consider is whether you're ready to deal with any repairs, maintenance, and other expenses and responsibilities that come along with owning a home. Make sure that you are ready to commit to this type of financial and personal responsibility before making the decision to apply for a loan.
Market conditions
You'll also need to do some research on your own, including what the current state of the real estate is in your desired area. Are home prices rising or falling? Is it a buyer’s or seller’s market? What about mortgage interest rates? Lower rates can make buying a home more affordable, while higher rates increase the cost of borrowing a home loan from a lender.
Ask yourself whether the monthly payment towards a mortgage is worth the investment, and take a look at what it will cost you in the end to borrow money from the bank once everything is said and done. Create a budget based on your current employment salary, debts, bills, and other payments to determine if you're ready financially.
If you're still unsure whether being a homeowner right now or in the near future is worth it, we recommend speaking with your financial advisor about your personal circumstances, short—and long-term goals, and current financial situation.
Can I buy and sell a house at the same time?
Yes, you are able to buy and sell a home at the same time. However, doing so can be tricky and will require you to do some planning ahead of time in order to pull it off. Here's what you need to keep in mind:
Make sure your closing dates align
If you're able to do so, make sure that your closing dates for both your home sale and purchase match as it can help you avoid having to pay for two mortgages at the same time for long.
Put in a contingency clause
It's also a good idea to include a contingency clause in your buying offer that makes your purchase contingent on the sale of your current home, which essentially helps you from buying a new property without selling your current one.
If you've recently purchased a home, it's essential that you protect your investment with a high-quality homeowners insurance policy. Connect with BrokerLink today for a seamless home buying, or selling insuring experience. Get your quote today!
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Will the housing market crash?
It's hard to tell. However, most experts predict that the market in Canada for real estate is not going to crash, despite inflation, the pandemic, and other market factors. While fluctuations are likely to occur, the Bank of Canada recently cut the interest rate by 0.25% and it's expected for them to continue doing so over the next year and a half.
How important is seasonality when it comes to purchasing a home?
Seasonality can actually play a huge role in the market when purchasing and selling a property. Here are a couple of factors to consider when it comes to seasonality:
Spring and summer market conditions
Spring and summer market conditions can significantly impact your property transactions, and here's why:
Inventory
Believe it or not, the spring and summer months tend to see an increase in the number of homes that are on the market. Because of this, potential buyers have more of a choice about where they want to live, giving the option to be choosier when it comes to putting down an offer on a property.
Competitive market
Keep in mind however, that even though there are more homes on the market, there is also more competition. As a direct result of this, you could find yourself paying over the asking price of a home and be involved in a bidding war.
Potential higher prices
As there is an increase in home demand, sellers often have more negotiating power, which can drive up sales prices.
Fall market conditions
Fall market conditions are another crucial factor to consider when buying a home for the following reasons:
Moderate inventory and competition
While the housing inventory is still decently high, usually there is less competition during the fall. Families are getting back into their routine following the summer break, which in turn makes for a more balanced market.
Motivated home sellers
If their home is not sold during the summer or spring, sellers may be motivated to get their home off the market, which could make conditions favourable for potential buyers.
Winter market conditions
Winter market conditions play a significant role in the seasonality of home purchases. Here's why:
Lower inventory
In a lot of regions, home sales tend to decrease during the winter, resulting in lower inventory for those looking to buy. While there may be fewer options available, this doesn't mean that sellers aren't motivated to sell the homes and offer incentives to potential buyers. It really depends on where you're located.
Less competition for buyers
Because there are fewer buyers in the market during the winter months, it may be a more fruitful time for buyers and sellers to negotiate their terms. This can bring about lower prices, less contingencies, and other benefits for both parties.
Overall considerations:
There are additional factors to consider regarding seasonality and buying a home, which we will elaborate on below:
Your personal circumstances
Remember that no matter what time of the year it is, your personal circumstances including your financial readiness, employment, and family will be important in your decision to enter the market or not.
Ultimately, being flexible with your timing can help you take advantage of current trends and seasons. The important thing here is to keep an eye on the market throughout the year. You might also want to consider talking to a mortgage advisor and your financial advisor to guarantee you're in the right place to buy a home.
How can I get the best mortgage rates?
Securing the best mortgage rate can be challenging, but it's still possible. Here's how you can do so:
Check your credit score
Make sure that your credit score is as high as possible. A high score shows lenders that you're able to pay off your debts and will be more likely to pay your mortgage each month compared to someone with a poor credit score.
Aim for a higher down payment
Having a higher down payment amount can help you secure a lower mortgage rate. Your goal should be 20% or higher, if possible.
Shop around for rates
Like insurance, mortgage rates will differ depending on who you go to. So, shop around at different banks and credit unions to find and compare rates. This will help you secure a favourable rate that you can afford.
Consider your loan term
A shorter term tends to provide a lower rate than a longer loan term. Just keep in mind that your monthly payment will be more expensive, and only those who can comfortably afford a higher mortgage payment should consider this option.
Fixed-rate vs. variable-rate
Take a look at fixed rates and variable rates and understand the differences between the two. While a fixed rate can offer you long-term stability in terms of how much you pay monthly, you may receive a lower rate upfront with a variable mortgage.
Get pre-approved
When you find a rate that you think is good, make sure to lock it in. Most lenders allow you to keep a mortgage rate for up to 120 days, which will allow you to shop around in the market and potentially find a home you like. This can also make the purchase process go a lot smoother as you won't have to wait to be approved once you find a home.
Consider working with a mortgage broker
Working with a mortgage broker can offer you numerous benefits, especially as a first-time buyer. They work on your behalf. So, you can expect them to help you shop around for different rates, give you advice, and more.
Stable costs with fixed mortgage interest rates
If you're able to be approved for a fixed mortgage interest rate, your monthly payments will remain the same despite changes in federal interest rates.
What are the benefits of owning a home in Canada?
Owning a home in Canada comes with numerous benefits, including the following:
It can help you build equity
One of the main benefits of buying a house in Canada is that it allows you to build equity. With each monthly mortgage payment, your overall loan balance will decrease, which increases your overall equity in the property. And because your property value will likely appreciate over time, you can significantly increase your network and sell for more than the purchase price.
Provides financial security
Owning a home can provide Canadians with long-term financial security in terms of building equity, potentially offering rental income, an increased property value over time. This means that in most cases, your initial investment will be protected, despite inflation.
Further, paying off your mortgage entirely can be an asset as you enter retirement by reducing your overall living expenses.
What are the disadvantages of owning a home in Canada?
While owning a home can offer benefits, if you are unable to afford to do so comfortably, there are some potential downsides to being a homeowner:
Substantial upfront costs
With a record-high housing market and interest rates, first-time buyers can expect to pay a substantial amount when buying a home. Not only do you have to qualify for a mortgage, you also need to put a down payment on your property, pay closing costs, and property taxes yearly, making it unaffordable for millions of would-be homebuyers in Canada.
Ongoing costs
Beyond your initial down payment, when you buy a house, you'll be responsible for ongoing costs as well. Whether maintenance and repairs, monthly mortgage payments, property tax, and other expenses, home ownership can be a financial burden for those who don't have favourable personal finances.
Market fluctuations
The real estate market is subject to fluctuations at any time and can often be unpredictable. Home values can decrease due to economic downturns or changes in the local market, which could potentially lead to a loss in equity and impact your personal financial situation.
Get high-quality home insurance with BrokerLink today!
At BrokerLink, our goal is to make your experience navigating the insurance industry as seamless as possible. We've got access to some of Canada's top insurance companies, enabling us to customize an insurance portfolio that reflects your unique needs as a homeowner.
With locations across Canada, we're likely in your neighbourhood! To work with one of our experienced brokers in person, don't hesitate to visit one of our locations. If you can't make it to one of our offices, you can always reach out to one of our team members over the phone.
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