Waiting to Buy a Home Just Got More Expensive

Waiting-to-Buy-a-Home-just-got-More-ExpensiveWe can all agree that we are in a better place now… so should you buy a house soon?

As we enter the “new normal,” we face new challenges like heightened inflation, increased costs of mortgages, skyrocketing interest rates, and rising home prices.

The decision to purchase a house and move right now is difficult for many reasons. But is there a downside to waiting?

Players Involved in Price Changes

With all the news headlines about real estate in Canada, you would think the market will quickly soar into a strong buyer's market. But the reality is that’s not happening, causing a lot of confusion.

The real estate market in Calgary has changed dramatically over the last two years. These changes are brought about by many players, such as interest rates, inflation, and house prices.

Canada is in a higher inflation period, and you can feel it everywhere, especially in your grocery bags. The Bank of Canada is trying to help lower inflation by increasing interest rates.

When interest rates go up, housing prices are supposed to come down. But there are upward pressures on housing prices from migration and a high employment rate in Alberta. Those factors are pushing up housing prices.

Cost of Buying a Detached House

Back in 2020, the market was so busy, and multiple offers were all around. At that time, the interest rate was only 1.89%. The benchmark price for a detached house was about $489,000. If you put a 15% down payment equivalent to $73,000, your monthly payment would have been around $1,740.

Moving into 2021, interest rates have increased slightly, and the market is still bustling. You might feel it was better to wait for the market to be less busy. In October 2021, the interest rate went up to 2.39%. The benchmark detached home price has gone up to $540,900. Now the 15% down payment is already $81,000. Your monthly payment cost is about $2,000 a month.

Fast forward to November 2022, the interest rates soared to 5.29%. The benchmark detached home price is sitting at $623,000. Your 15% down is $93,000. And now you have to come up with $3,172 monthly for the same house you could have paid for $1,740 per month if you had just bought it in 2020.

The monthly payment for a detached house has gone up $1,432 from what it was in 2020!

Pros of Waiting

There are pros and cons to every decision we make in life, even in waiting!

The first pro in waiting is your rent might actually be less than what it would be to pay for a mortgage. As long as your rent doesn't go up, that could work for you.

The second thing is you can wait long enough and have the ability and patience to wait for the housing prices to come down or the interest rates to go down. But how long is that going to take?

Finally, you might be in a stage where the housing market doesn't matter to you. Maybe your kids have moved out, or you just got married and are planning different things, like travelling more. You might have many investments giving you a lot of payment back already, and it's outside of the housing.

Cons of Waiting

The first one is if you are renting, you are actually paying someone else's mortgage down. You are paying someone else's debt, and that's renting, no matter what!

The second con of waiting for prices and interest rates to go down is losing the value of your money. With inflation as high as it is right now, your money sitting in the bank is losing up to 7% of its value yearly. That means your buying power is becoming less just by you waiting!

The next con is the possibility of paying higher interest rates in the future because of all the upward pressures on home prices in Calgary. Even if home values stay the same, your cost of borrowing will decrease anyway.

Lastly, we could see values going up with all of the upward pressures in the market. Think about this: if the Bank of Canada sets a couple more small interest rate increases next year, and they stop doing that at the end of spring. What happens to home prices? You have to weigh this into consideration.

In conclusion, to have payments similar to the 2020 figures with about $1,750 a month, you need to see a 45% decrease in the benchmark price of a detached home in Calgary today! That means the $623,900 benchmark price of a detached house right now has to go all the way down to $345,000! That is a massive drop, and nobody knows how long you must wait to see that happen.

Posted by Jared Chamberlain on
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