December 12, 2022
An honest assessment on the current state of interest-rates and purchase activity:
We all know that interest rates have climbed aggressively in 2022 in comparison to the incredible (and in some cases all-time) lows displayed throughout the pandemic in 2020 and 2021. While it’s easy in hindsight to say that we all should have seen this coming, let’s not forget a certain sentiment that was echoed throughout the pandemic by a very high-level Bank of Canada executive (who will remain nameless) that Canadians “can be confident that interest rates will be low for a long time.” I do not bring that sentiment up as a form of blame or resentment, but rather to simply highlight that no one truly knew how quickly and aggressively interest rates would rise, myself included. Yes, we likely all knew that eventually interest rates would need to rise, particularly once inflation statistics began demanding so, but 2022 has represented a seismic shift that has traveled at lightening speed; one that I truly believe very few saw coming. However, it’s important to note that just as the interest rates of 2020 and 2021 would not last forever, neither will the rates of today. So what does this all mean for you?
If you are a first-time buyer or anyone seriously contemplating the idea of making an owner-occupied purchase, but are scared to do so given higher rates, I would strongly encourage you to first look inward to highlight your true motivations. If your motivations are not purely speculative and you understand that your home is more than just a financial asset, then I encourage you to get in touch with your trusted mortgage professional and consider the data behind down payment requirements, mortgage qualification rules, and regular carrying costs in this interest rate environment. You might be surprised at the opportunities that currently exist. Going through this process will also help you determine if a prospective purchase is feasible and preferable for you. In other words, you will be given an opportunity to see beyond all the negativity surrounding the topic of interest rates. Like I have said for years, rates are just one part of the story and often the most over-stated and excessively-emphasized component of mortgage financing. Do they matter? Yes, but so do the topics of down-payment, amortization schedule, regular payment, pre-payment privileges, pre-payment penalties, overall qualification abilities, etc. So before you assume that the timing behind this market just isn’t right, be sure to engage your trusted mortgage professional and explore the data surrounding a prospective purchase to see if this sentiment is true or not for you. Again, you might be surprised.
Similarly, investors should also be open to engaging with a few key data points before writing this market off completely. As prices have continued to drop, there could be some attractive opportunities out there depending on your property-type preference, location, qualification abilities, etc.
Please note that I am not universally saying that now is the right time to invest in Canadian real estate. The right time is entirely subjective and involves your personal preparation, values, and circumstances. For you, the only way to know if now is the right time is to explore. Explore your values, personal circumstances, and motivations. In addition to these, you must also explore your qualification abilities with your trusted source for mortgage solutions. While engaging this process, you should not only discover what you would qualify for, but you may also find your true comfort zone towards all facets involved in making a purchase from closing to carrying costs, which will only serve to make you a more informed potential borrower. Thanks for sticking with this post the whole way. Have a great end to 2022!
Brett Milton
Mortgage Agent
Lic# M18001417
Mortgage Intelligence
FSCO Lic 10428