How does a cooling market affect you?
How does a cooling real estate market affect buyers and sellers?
A variety of factors — including higher interest rates, rising inflation and the climbing cost of living — have all played a role in cooling much of Ontario’s residential real estate market.
Financial institutions have recently reported that rising interest rates are driving up the stress test’s qualifying rate for a mortgage. The stress test is a calculation that lenders use to determine if a buyer is able to qualify for a certain mortgage, and it automatically includes an interest rate at a higher level. The use of a higher rate is to assess a purchaser’s ability to make mortgage payments if the interest rate increases.
Now, with interest rates on the rise, an even tougher stress test means that the number of people eligible for a mortgage, and the amount they are approved for, will likely decline.
It’s important to highlight that property values fluctuate over time, sometimes with sharp increases and decreases. Although economists are generally of differing opinions on how long real estate prices will be down or up, it is difficult to guarantee any projections with certainty, as they can be influenced by so many global factors.
If you are keen on purchasing a home in Ontario, conditions leading to declining prices may work in your favour. However, no one knows how low the market might go. Depending on your neighbourhood preference, you may be able to find a property for less than what it may have sold for just a few months ago. As well, there may be more opportunity for you to negotiate terms and conditions to your advantage, such as getting a home inspection or securing financing.
If you are looking to sell your property, however, this may be a less favourable time. Depending on the type of home you have or its location, you may no longer see competing offers as commonly as you may have in the last few years.
It is understandable that you may be wondering whether now is the best time to forge ahead and list your property — or if it might be better to wait on the sidelines until the real estate landscape changes. The short answer is that it will largely depend on each individual’s personal and financial goals and circumstances.
Here are some questions to consider:
- What is driving your decision to sell? Is it because you have bought another home and want to avoid carrying two mortgages at the same time? Are you looking to move to another city for work, or to be closer to family? Are there other personal reasons behind your decision?
- Do your finances allow you to hold onto your property for a little longer? Is your timing flexible?
- If you are moving to another property, can you rent your home out and reassess the market over the next few years?
- Are you looking to make the maximum equity possible, or do you have an amount you will be content to settle on?
Everyone’s situation differs, so answering these questions may help you make a more informed decision. I also highly recommend consulting a real estate agent who is knowledgeable and experienced with real estate transactions in your area.
If you have a question for Joe about the home buying or selling process, please email email@example.com.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.