Should you buy a house right now, or wait until interest rates come back down?

This article has been updated from a previous version originally published on September 19, 2022. 

The Bank of Canada (BoC) has cut interest rates for the seventh time in a row, signaling a shift in the borrowing landscape.

But with economic uncertainty both at home and south of the border affecting everything from inflation to housing supply, is now the right time to buy a home, or should you wait? Here’s what to consider before making your move.

Can you qualify for a mortgage?

“Whether it's the right time to buy a house is an individual decision but the current interest rate market is an important factor,” says Richelle Morgan, a mortgage agent with Kingston Mortgage Solutions. “First and foremost, you must make sure you can comfortably afford your mortgage payment and the other costs that go into owning a home at current interest rates.”

Morgan adds that even with the impact the COVID-19 pandemic had on housing aside, housing prices generally rise every year.

“If you wait for the potential of rates to go down, you're losing out on equity from the investment of real estate. It is a risk but, in a survey, 75% of homebuyers who have purchased in the last five years do not regret buying,” she says.

Recent changes to mortgage rules may make homeownership more accessible than before. The new mortgage insurance cap and extended amortization periods mean that many buyers can qualify for a larger loan than they previously could.

However, just because you qualify doesn’t always mean you should buy – you should carefully assess your long-term financial security before jumping in.

“Because interest rates have been coming down, this is going to enhance affordability for prospective buyers,” says Andrea Thompson, Certified Financial Planner at Modern Cents. “However, we still have to factor in the mortgage stress test. And the mortgage stress test is something that lenders use in order to determine whether or not someone can afford a potentially higher mortgage payment in the future.”

Is your income reliable?

Your ability to afford a home isn’t just about today’s rates; it’s about future stability. Certain industries, such as tech, media, and -- in particular, amidst Trump’s tariffs -- manufacturing, have experienced layoffs. If you are in an industry currently threatened by the trade war – say, one with a large American clientele – or your job security in general is uncertain, maybe wait before locking into a mortgage.

However, depending on your job situation, you may also want to hasten the house hunt.

“Being a salaried employee is often the best criteria for lenders,” says Thompson. “If you’re considering a job change or looking to become an entrepreneur, it would probably be advisable to qualify and buy your home prior.”

Read more: How long should you be at your job before applying for a mortgage?

Do you need to move urgently?

Life events often dictate when we buy. If you're relocating for a job, dealing with a divorce, or expecting a growing family, waiting may not be an option. In that case, taking advantage of today’s lower rates might be the best decision. But if you have flexibility, you may want to wait and see how market conditions evolve.

“I tell my clients that buying a home is a lifestyle decision,” says Thompson. “So oftentimes there is a necessity to consider a home purchase rather than it being completely a financial decision.”

Market outlook: Rates, prices, and what’s next

Fixed mortgage rates have dropped alongside the BoC’s cuts, currently hovering around mid-4%, depending on the term and product.

Morgan says most in the industry predict rates will stay in this range for a while without any major changes up or down. However, she says, predictions for variable rates vary depending on international events like the threat of tariffs.

“As the Bank of Canada's overnight lending rate decreases, the discount offered off mortgage prime will decrease as well,” she says.

What about home prices?

Housing affordability isn’t just about interest rates. Home prices and other associated ownership costs also play a crucial role. While some markets have cooled, limited supply continues to drive prices up in major cities.

“From a personal cashflow perspective, a lot of individuals are eager just to get into the real estate market and are often not thinking about the other costs that come along with home ownership,” says Thompson. “The mortgage is only one element that people should consider when thinking about buying a home.”

She adds that if proposed tariffs on building materials go through, any costs of home improvement, home maintenance, or home renovations could increase. Additionally, new construction could slow down, further restricting supply and keeping prices elevated.

If you do decide to wait for interest rates to drop, Morgan says the first thing you should do is talk to a mortgage expert.

“We will go over your profile and provide personalized planning advice. In general, increasing your downpayment amount, maintaining a solid credit score while reducing debt, and increasing your income will go a long way.”

Breaking it down: Single-family homes vs. condos

• Single-Family Homes: Prices remain high in many regions, particularly where inventory is low. However, suburban and rural markets may offer more affordable options.
• Condos: Supply is stronger in many urban areas, leading to a more balanced market. If affordability is a concern, condos might be a more viable entry point.

If you buy now, what’s the best mortgage strategy?

Morgan suggests that first-time homebuyers who are new to owning a home should opt for a 5-year fixed mortgage in order to avoid changes in their budget. She says a five-year term will give them time to adjust and build equity before negotiating a new term.

“Seasoned homeowners, who may have equity and experience in the market, may opt for a variable rate as they have historically resulted in paying less interest over time,” she says. To plan for potential increases, she advises people to ensure there is room in their household budget without financial strain.

Fixed vs. variable: Which is best?

• Fixed Rates: Offer stability, which is ideal if you want predictable payments and protection from potential rate hikes.
• Variable Rates: Currently lower than fixed rates, but they fluctuate with the market. If rates continue to drop, variable mortgages could be a money-saving option.

Short-term vs. long-term mortgages

• Short-Term (1-3 years): A good choice if you expect further rate cuts and want flexibility.
• Long-Term (5+ years): Provides stability but may lock you into a higher rate than necessary if rates decline further.

There’s no one-size-fits-all answer to the buy-or-wait question. If you’re financially secure and need to move, you may be able to take advantage of today’s lower rates. But if you have flexibility, biding your time and riding out the economic uncertainty could nab you better rates interest rates and a lower home price.

“As we've learned in the past 5 years, there is no crystal ball to predict interest rates,” notes Morgan. “It's a better strategy to focus on the term and product that fits your overall financial goals."

Weigh your options carefully, consider your long-term financial health, and choose a mortgage strategy that aligns with your needs. Looking for the best mortgage rates? Compare lenders and find the right mortgage for you today.

Where in Canada is the housing market healthiest?

While affordability varies widely across the country, some markets remain more accessible than others. Here are areas where homes can still be found affordably:

• Alberta & Saskatchewan: Lower home prices and steady job markets make cities like Calgary and Edmonton attractive for buyers.
• Quebec: Montreal remains more affordable than Toronto or Vancouver, though prices have been rising.
• Ontario & B.C.: Toronto and Vancouver continue to be expensive, but smaller cities like London and Hamilton provide more affordable alternatives.

Read more: How much more money do you need to make to buy a home in Canada?