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Is Now a Good Time to Buy a House?

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It seems we ask this question every six months. And this time we’re asking amid one of the worst recessions in Canadian history.

We can’t predict home prices, but we can say this. Cheaper mortgage rates and softer home prices are making more people wonder if this is their opportunity to get in.

They’re honing in on two things:

#1 - Mortgage Rates at Historic Lows

Since the COVID-19 pandemic struck months ago, mortgage rates have been on a steady decline, save for a short-lived pop in March.

And now, fresh fears of a second wave of COVID are putting renewed downward pressure on rates.

The lowest effective 5-year fixed default-insured rate is now 1.88%. That’s well below the 2.00% psychological threshold. Just 12 months ago, the lowest nationally available insured rate was 0.71 percentage points higher.

To understand the savings available to new homebuyers at today’s rates, consider this table. It compares the difference in monthly mortgage payments from January to today (adjusted to the average home price in January vs. now):

January 1, 2020 Monthly Mortgage Payment on $504,350 June16, 2020 Monthly Payment on $494,000 Difference Savings Over 5-Year Term
Lowest 5yr Fixed – Insured 2.48% $2,254 1.88% $2,063 $191 $11,460
Lowest 5yr Fixed – Uninsured 2.84% $2,346 2.29% $2,162 $184 $11,040

From an interest cost standpoint, there’s no question we’re in a sweet spot.

#2 – A Pause in Home Price Growth

In many parts of Canada, homes are selling at a discount to their pre-COVID prices.

In the Greater Toronto Area, the average home price in May was $863,599, down 6% from the peak of $921,000 reached in May 2017.

Similarly, in the Greater Vancouver Area, the average home price for all types is $1,028,400, down 7% from their peak of $1,104,400.

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But the COVID-19 crisis hasn’t tanked home values like some expected. At least not yet. The reason is simple supply and demand. Both sales and new listings have plummeted in tandem, largely leaving some buoyancy in prices. That may be changing, however, with a record increase (69%) in new listings in May.

But, with so many buyers and sellers waiting on the sidelines, traditional real estate “metrics become a bit less reliable,” said BMO economist Robert Kavcic in a research note.

“This all could shape a market that looks less extremely negative in the near term than some fear, but one that also looks flatter over the medium term,” Kavcic said.

But what does this mean for potential buyers? It means buyers waiting for prices to fall substantially may end up waiting a long time. In the meantime, sideways-moving prices may be a blessing to home shoppers compared to the rapid price increase (in some regions) leading up to the crisis.

Will Improved Affordability Make a Difference?

Any way you slice it, housing affordability has improved in recent months.

Yet the improvement in affordability may still not be enough for prospective buyers priced out of more competitive markets. For them, there’s no short-term solution apart from less ideal compromises like moving to a cheaper region, buying with a friend, taking a second job, etc.

But if you have a down payment, stable job, aren’t drowning in debt, no one can definitely say that now is a bad time to buy. Yes, we all want to buy low and sell high, but housing has proven repeatedly that it can defy headwinds like economic crises, new mortgage rules and new real estate taxes. So if you truly need a home and renting is not an option, throw out your crystal ball, forget about flipping for a profit and just buy.