We can’t for see the future!
Interest Rates are UP, when you compare them to 2017 & 2018, we have had, I believe, 5 interest rate hikes. However the Bank of Canada had a change of heart in January, holding its current benchmark target rate at 1.75%. Which is good news for Home Buyers, but it seems that many are still sitting on the fence waiting. It has always been said that the best time to buy Real Estate was yesterday, and with still considerably low interest rates, and better home pricing/values, I would say it is a great time to buy a home! With the Canadian Economy doing considerably well and strong employment growth, we are still seeing adjustments being made to the Real Estate Industry, specifically home prices. The changes to mortgage qualification rules, and lending guidelines, specifically the introduction of the Stress Test in 2018, have Buyers and Sellers, well… STRESSED!
I remember when Wayne and I purchased our first home almost 30 years ago in Glen Abbey, Oakville, we were afraid. But we did it anyway, with an interest rate of 14.75%. Imagine that, what were we thinking? Now when we compare home prices then to now, they are quite different. Our mortgage at the time was approximately $144,000 and our Monthly Principal & Interest was around $1,312.00. If we look at mortgages today, they are considerably low still, but not as low as 2017/18.
Looking at the Mortgage Calculator from TD Canada Trust, here are some figures for you:
SPECIAL RATES – 3.64% FOR A 3 Year Fixed and 3.74% for a 5 Year Fixed.
FIXED RATES – 3.89% FOR A 3 Year Closed and 5.59% for a 5 Year Closed.
VARIABLE RATES – 3.5% FOR A 5 Year Closed Variable and 5.1% for an Open Variable
Here are some numbers:
$400,000 Mortgage at a 5 Year Fixed Rate, the Monthly Principal and Interest is $2,048.00. A $300,000 at a 5 Year Fixed Rate, the Monthly Principal and Interest is at $1,536.00 and a $200,000 Mortgage at a 5 Year Fixed Rate, is about $1,025.00. Variable Rates would be lower, but you would be gambling on your rate if in fact they start to climb in 2019.
The way I see it, the pattern seems to be the lower the home price, the higher the rate, the the higher the home price, the lower the rate. Do the Banks always win? Does it seem to balance out in the end? We will expect to see modest increases to home prices throughout much of 2019, with maybe one or two interest rates. It is an opinion that we may see the Bank of Canada raise its Benchmark rate from $1.75% to $2.5% between 2019 – 2020.
Let’s get back to the Stress Test for a minute, because this is weighing heavy on the Home Buyers and their ability to make a home buying decision. In order to qualify for a mortgage, Home Buyers must also qualify for today’s current rate plus an extra 2% if in fact rates to go up. This is one of the reasons we are seeing many deals fall apart, Buyers can not qualify for the additional 2%. Thus they are being quite cautious in this Market.
So what do Buyers do? Well in the case of Oakville home values, many first time Home Buyers are choosing one of two options. Rentals are one but they are scarce. The Rental Market has gone crazy in Oakville with increased rental prices. We are seeing Home Owners take advantage of this market and offering Basement Apartments and Shared Accomodation Rental Opportunities also. The other option is to move further West in smaller communities targeting First Time or Move up Home Buyers. First Time or Move up Buyers are looking at and buying homes West of the City, meaning they are considering better home values in communities like Ancaster, Hamilton, Binbrook, Windsor, St. Catherines, Guelph, London, Cambridge and other smaller centres. These smaller communities are offering better pricing for first homes or move up homes compared to Oakville pricing by up to $300,000 savings. I say the word savings because when we compare a Townhome for example here in Oakville, they are priced in newer communities around $750,000 to $850,000plus. In newer West Communities, we can sometimes explore and find Townhomes priced from $400,000 to $500,000+. With many Homebuyers wanting to still get into the market, moving East to West is a fantastic option! With low Interest Rates, the time to buy a home is still now.
To learn more about your current situation and options available to suit your lifestyle and family, let’s connect and create the plan that will protect your family’s best interest. We know where the $350,000 to $500,000+ priced homes are. Being members of TREB & OMDREB & CREA, we are able to access data and valuable information to find these better priced homes in great neighbourhoods and we want to help you find them! Give us a call anytime at 905 399 5910.
Oh and if you need a new Mortgage Rate Approval, call us too! We have one of Ontario’s top Mortgage Specialists you must talk. Get the facts on Mortgages, Stress Test & Affordability and let’s start this process today!
Wayne and Virginia Munden