I often get asked, “When is the right time to buy?” The Vancouver market is generally stable, attracting investors from all over the world. People want to invest in a market that is always in a state of demand. Yet this confuses many potential buyers, especially local ones: Do you purchase a home with low interest rates and a high price, or do you wait to purchase a home with high interest rates and a low price?
My answer is simple: If a buyer can qualify to purchase a home, then they should act now. Let me explain:
- When you wait for interest rates to increase by 1%, say from 3% to 4% on a 25-year amortized mortgage, your purchasing power automatically decreases by approximately $25,000. Therefore, home prices would need to decrease by $25,000 or more to make up for the loss in purchasing power. Though real estate prices may decrease when interest rates rise, the amount they decrease and when they decrease remains uncertain.
- Interest rates do not rise overnight. Usually, the Bank of Canada will increase interest rates 1%-2% over 1-2 years. During this time, the cost of living rises to match the increased interest rates. This means that condo fees, heating costs and property taxes may also rise, further reducing the amount you can qualify for. Therefore, home prices would have to decrease by that much more to accommodate your fixed expenses, which in turn would effect your purchasing power.
- The basic point is this: You should buy when you are able to buy. Buying based on “timing the market” is not recommended since a drop in home prices does not automatically mean increased affordability.
Renewals are a great time to review your mortgage and talk about the market. You should receive an anniversary card from me reminding you about your mortgage renewal. When you do, let’s schedule a time to sit down and discuss the facts: where the market is currently, where your interest rates are and where they could be, and what your future goals are. Retiring? Looking to buy a recreation property? Your financial future is just as important as your financial present!