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The GTA real estate market has been in flux for over a year now and it’s no surprise that a lot of homebuyers have taken a pause in their search. If you’re still sitting on the fence, here are 5 reasons to consider buying now: 

#1: As interest rates increase, your home buying budget decreases. 

While nobody expected the record-low interest rates during the pandemic to stay that low forever, even the experts didn’t foresee the Bank of Canada increasing rates 9 times in 15 months, from 0.25% in March 2022 to 4.75% in June 2023. 

When interest rates increase, home buying budgets decrease. Our mortgage partner Elan Weintraub of MortgageOutlet.ca shared this graph with our team. It shows the decreased borrowing power of a $2,500 monthly mortgage payment: 

At a 2% interest rate, a $2,500 monthly payment allowed you to borrow $590,000. At a 6% interest rate, that $2,500 payment reduces your home buying budget by $200,000. 

That means a buyer who doesn’t want to increase their payment – or can’t – will have to make more compromises. It might mean buying in a different neighbourhood or community, or compromising on size, finishes or extras like parking or a finished basement. For some buyers, a big decrease in how much mortgage they can qualify for means they can’t buy at all.  

Reason to Buy Now: The Bank of Canada has clearly articulated their intention to use interest rates hikes as a tool to tame inflation and have signaled that interest rates could increase again. 

#2: As interest rates increase, it gets harder to qualify for a mortgage. 

In Canada, home buyers seeking mortgages must undergo a stress test to make sure they can still afford their home in the future, if interest rates increase. So instead of finding out how much you can borrow using the current interest rate, your lender uses the greater of:

  • The benchmark rate (currently 5.25%); or
  • The actual interest rate + 2%

Impact of the Stress Test on Fixed Rate Mortgages

In January 2022, the 5-year fixed mortgage stress test meant a buyer had to qualify for a mortgage at 4.79% (the real rate of 2.79% + 2% = 4.79%).

In June 2023, a 3-year fixed rate mortgage stress test requires that a buyer qualify at 7.39% (the real rate of 5.39% +2%).  

Impact of the Stress Test on Variable Rate Mortgages

In January 2022, a buyer seeking a 5-year variable mortgage had to qualify at 3.79% (the real rate of 1.79%+ 2%= 3.79%).

In June 2023, that same buyer seeking a 5-year variable mortgage has to qualify at 8.25% (6.25%+2%=8.25%). 

Reason to Buy Now: If you’re already pre-approved for a mortgage and buy and close on a home before your approval expires, you won’t have to qualify at a new, higher stress rate. Talk to your lender if your pre-approval is out of date. 

#3: The buyers are back and prices are increasing.

While we initially experienced a dramatic decrease in prices as a result of the initial interest rate hikes in 2022, the Toronto real estate market has essentially recovered. We’ve watched average prices increase each month since last summer. 

As more and more buyers who paused their searches in 2022 re-enter the real estate market, competition will continue to increase, resulting in higher prices. Bidding wars for hot properties or hot neighbourhoods have been the norm since the spring.

In May 2023, the average price of a home was up 3.5% compared to April 2023. That means that in just one month, in Toronto:

  • The average detached house sold for $125,380 more
  • The average semi-detached house sold for $72,359 more
  • The average townhouse sold for $14,623 more
  • The average condo sold for $32,998 more

Reason to Buy Now: Most experts are predicting that Toronto home prices will continue to increase and that the most recent interest rate hike will not have much (if any) impact on prices. 

#4: There are more homes for sale. More Homes = More Choice. 

With the market in flux for the last 15 months, Sellers have (understandably) been nervous about listing their homes for sale. Like so many buyers, they’ve also been sitting on the fence. But with the warm weather finally here and sellers feeling more confident about the market, they’ve finally started listing their homes for sale. And that means more choice for buyers and hopefully, less competitive bidding wars. 

Reason to Buy Now: While there’s more supply of homes for sale, it’s still not enough to meet the demand, so don’t expect prices to come down. But at least you have more homes to choose from!

#5: Life!

Most people buy a home because they need one – not because of the interest rate or what’s happening in the economy. Most moves are precipitated by a lifestyle change – marriage, kids, divorce, new job, change in financial circumstances, moving to/from the city, etc. 
Reason to Buy Now: Your housing needs have changed and the time is right for you.

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