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To buy or not to buy? Factoring Interest Rates Into Your Decision

Updated: Apr 29

Should I Buy Now or Wait? Understanding the Impact of Interest Rates on Purchasing Decisions

In 2021 home sales across the GTA saw a spike as interest rates were low and demand was high. You may remember the memes that filled the internet at the time- parodies about the lengths to which potential buyers had to go in order to prevail over dozens of competing offers and secure their desired home. Though the parodies provided some comic relief, the experience for those looking to move was no laughing matter.

Since then, we have seen a rise in interest rates successfully aimed at cooling off the markets. Now that the Bank of Canada is signalling a trajectory of small interest rate cuts throughout the year ahead, the question on everyone’s mind is “should I buy now, or wait?

The answer to this question is “it depends”. For some looking to make a move, holding off to buy a new place could be the better move. For others that are able, there are advantages to getting ahead of the potential “gold rush” that historically accompanies reduced interest rates.

Yes, a lower interest rate can mean more purchasing power and lower monthly mortgage payments. With the lower rate, however, comes a surge in demand for properties, increasing purchase prices and home loan amounts.

But if I buy now I need to sell now. I can get more equity out of my current property if I wait until there are more buyers in the market for it.”. This can be true in certain cases. It is important, however, to remember that with the increased demand for your property comes increased demand for the property you have your eye on purchasing.

Here’s a simplified example of what we mean. From July 2021 to July 2022 the average price for detached homes in Toronto rose 13.6%*. Some who were looking to upgrade their home decided to wait until the market neared its peak in order to sell for top dollar.

So let’s say John and Julie were ready to make a move to somewhere more suitable, and considered listing their property in 2021. They determined they could list it for $1,500,000. Since demand was rising across the board, they figured they may be able to sell for around $1,704,000 by waiting until the following year. Fortune rewards the patient.

What Julie and John didn’t factor in, though, was that the price of the house they were dreaming of as their forever home would also be affected by the rising tide in the market. Instead of the $2,300,000 that they could secure it for in 2021, by the time they were ready to buy the following year it would cost them around $2,612,800. They extracted $204,000 more from their home sale, but now need to spend $312,800 more to move. That’s a net loss of $108,800. That hurts.

For those that are financially able, buying now would be a great investment. Current buyers are left with more upside to be realized in their new home than the perceived downside of selling in the current market . A move now would enable you to purchase your desired home before buyers flood into the market and drive prices out of reach.

Securing a mortgage that will allow you to refinance down the road if rates go down will then allow you to take advantage of the value in the market today as well as the lower interest rates of tomorrow.

The key is to find a home that you are excited to move into and plan on staying in while the rest of us ride the wave of interest rate changes over the next year or two. That which is true of other investments is true of real estate- the key is not timing the market, but time in the market. Buy, enjoy, hold, refinance.

Those now unable to buy will move into your new neighbourhood when the rates drop and the buying frenzy shows up. Instead of you, it will be them bringing a cordial welcome gift when they move in. They will have paid a higher price to move into your community in the midst of an interest rate induced buying fever. This will raise property values in your new community and increase your equity in your (dream) home. I’d take that over a baked good any day.


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