With recent shifts in home prices and mortgage rates in Canada, many Canadians are wondering about the best next steps in their homeownership journey.

Whether you’re a current homeowner or someone considering buying a home, today’s market conditions mean that a well-informed strategy is essential.

In this article, we’ll explore how the current Canadian housing market affects your options, whether you’re thinking about buying, refinancing, or simply assessing your options for the future.

Current State of the Canadian Housing Market

What’s Happening with Home Prices?

Real estate prices in Canada have dropped by 22% over the last 2.5 years. Sourced from wowa.ca.

The Canadian housing market has seen a rollercoaster of price changes over the past few years. In some areas, prices have cooled slightly, while in other regions, home prices remain high due to demand. For those considering buying or selling, understanding these trends is key.

Currently, housing prices are about 22% lower on average across Canada, compared to their peaks in 2022.

Many factors impact Canadian home prices, including economic changes, government policies, and inventory shortages. Current conditions mean that some areas may provide better opportunities for buyers, while others still favor sellers.

Impact of Mortgage Rates on Buying Power

Home buyer reviewing mortgage rates in Canada

Mortgage rates in Canada have decreased notably over the last 6 months, directly affecting affordability and buying power.

Lower rates mean lower monthly payments, higher affordability, and overall positive impact on what buyers can afford.

Understanding the impact of these rates is essential for anyone considering purchasing a home in today’s market or making changes to their current mortgage.

Considering Buying a Home? Here’s What You Need to Know

Buying a home in a higher-rate environment might seem challenging, but with the right strategies (taking advantage of falling rate), it’s possible to navigate this market and save a lot of money.

Here are a few tips to consider:

Getting pre-approved will give you an accurate picture of how much home you can afford based on current rates.

It’s also a valuable tool for narrowing your search and making competitive offers when you find the right property.

Pre-approval also lets you lock in a rate for a certain period, offering some protection if rates change.

With the market expected to get hot again in the Spring 2025, a pre-approval is a must if you’re planning on buying come April.

2. Choose the Right Type of Mortgage

Choosing between fixed and variable rate mortgages is a big decision, especially in a market with changes rates.

A fixed-rate mortgage offers stability, locking in your interest rate for the term of the mortgage.

A variable rate may fluctuate with market conditions, but it could offer savings if rates decrease further (which they will from here).

Speak with a mortgage advisor to determine which option aligns best with your financial goals (KEY POINT: your mortgage term will determine what type you should choose (1, 2, 3, or 5 years).

 

Should You Refinance Your Mortgage in Today’s Market?

 

Couple considering refinancing their mortgage

Refinancing is a tool that many homeowners use to adjust their finances, whether it’s to secure a lower interest rate, change monthly payment terms, or access home equity for other purposes.

With the recent decrease in mortgage rates, refinancing may be beneficial to your finances (especially if you got your current mortgage in the last 1-2 years).

1. When Does Refinancing Make Sense?

If your current mortgage has a variable rate and you’d prefer the stability of a fixed rate, refinancing could allow you to lock in a rate for added peace of mind.

Additionally, if you have significant home equity, refinancing can give you access to funds that can be used for home improvements, investments, getting a down payment on another property, and other goals.

2. Assessing Your Financial Goals

When considering refinancing, it’s important to think about your long-term goals. Ask yourself:

1. Do you want lower monthly payments?
2. Are you looking for a way to access funds for a major purchase or investment?
3. Are you struggling with monthly cash flow?
4. Would you like to decrease your amortization (pay down your mortgage sooner)?

 

Understanding your objectives will help you determine if refinancing is right for you. This is exactly what a mortgage broker can help you with.

Exploring Homeownership Options for the Future

 

Family reviewing Canadian homeownership options

If you’re not quite ready to buy or refinance, that’s okay too! There are still many steps you can take to be prepared when the timing is right. Here are a few:

1. Improve Your Credit Score

Your credit score plays a significant role in determining mortgage rates and terms. By maintaining a healthy credit score, you’ll be better positioned to secure favorable rates when you’re ready to buy or refinance.

If you’re not aware of what goes into a credit score, read this explanation.

2. Save for a Larger Down Payment

Having a larger down payment can reduce your monthly mortgage payments, making homeownership more affordable. Consider setting aside funds each month to build your down payment savings.

And if you weren’t aware you can use your RRSP funds towards your first home!

3. Stay Informed About Market Trends

The Canadian housing market can change quickly, and staying informed about home prices and mortgage rates in Canada can help you make timely, well-informed decisions.

Mortgage advisors (like us!) offer market insights and updates to help you stay on top of these trends.

 

Final Thoughts: Is Now the Right Time for Your Next Move?

Whether you’re considering buying, refinancing, or simply planning for the future, understanding the current Canadian housing market is crucial. With decreasing mortgage rates and changing home prices, now is the time to make informed decisions based on your unique situation.

If you’re ready to take the next step or if you’d just like to explore your options, I’m here to help.

Reach out anytime to discuss what the current market means for you and how we can create a strategy that aligns with your goals.

Over the past couple of years, the Canadian real estate market has experienced significant shifts. One of the most eye-opening facts is that home prices have dropped by an average of 25% compared to two years ago. But what does this actually mean for buyers, investors, or homeowners looking to refinance?

In this blog post, we’ll break down the numbers, highlight the opportunity this presents, and explain why now might be the perfect time to make your move in the real estate market.

Prices Are Down by 25%: What Does That Mean?

According to recent market data (WOWA, FRED), home prices in Canada have dropped by an average of 25%. On the surface, this might not sound like much, but when you consider what that translates to in actual home values, the potential savings are shocking to many people.

Imagine this:

A home that sold for $1 million during the height of the pandemic would now sell (on average in Canada) for $750,000. That’s a massive $250,000 less — the equivalent of about three years’ worth of the average household income in Canada.

For buyers and investors, this decrease is nothing short of a game-changer, providing leverage that hasn’t been seen in a long time. Here’s why…

Real estate prices in Canada have dropped by 25% over the last two years. Sourced from wowa.ca.

The Historical Context: What Comes After Price Decreases?

Historically, after periods of significant price decreases in the housing market, long-term increases almost always follow. If we look at past market trends, it’s clear that while prices may dip, they eventually recover and then some.

Here’s why:

• Price Corrections: Real estate markets often experience corrections, but they are followed by extended periods of appreciation.
• Low Inventory: As prices begin to stabilize, demand starts to rise, pushing prices upward. And we still have a housing shortage in Canada on top of this.
• Economic Growth: As the economy strengthens, so does the housing market. Inflation has decreased to the target level, which has helped affordability overall (although it’s still difficult for most Canadians).

A graph depicting the historical housing prices of Canadian real estate from 1970 to 2024. Sourced from fred.stlouisfed.org.

Why This 25% Price Drop Is a Huge Opportunity

If you’re thinking about buying, investing, or even refinancing, now is the time to consider your options. Here’s why:

• Reduced Prices: With homes costing significantly less than they did two years ago, you can buy more house for less money.
• Better Investment Potential: With real estate historically increasing in value, purchasing now can mean higher returns in the future.
• Mortgage Rate Cuts: Canada has seen three consecutive rate cuts, and more are expected by the end of 2024 and into 2025. Lower rates, combined with lower prices, create a unique opportunity for buyers.

Whether you’re considering buying a new home, refinancing your existing mortgage, or investing in rental properties, the current market conditions offer unparalleled financial leverage.

How You Can Take Advantage of Lower Prices and Rates

The drop in home prices, paired with the recent rate cuts, means there are plenty of opportunities to make moves that were not available even a year ago. Here are a few options to consider:

Buying a New Home: Take advantage of lower prices and get a lower rate than you would have gotten just 6 months ago. You can also set yourself up to take advantage of rate cuts that are coming over the next months and year.

Refinancing Your Mortgage: Access your home equity while rates are falling. You can even go into a shorter term. Home equity is huge for paying off other debts, doing major renovations, or getting the money you need for a down payment on another home.

Investing in Real Estate: Whether it’s rental properties, vacation homes, or investment properties, now is a good time to buy when you consider where we were just 1-2 years ago.

Renewing Your Mortgage: For those with renewals in the next 4 months, make sure you’re taking into consideration the rate cuts. You should shop around because your current lender will likely not offer you their best rate and terms.

Looking Ahead: What Are Your Goals?

Now is the time to plan ahead. Whether your goals are short-term or long-term, having a strategy in place is crucial. Ask yourself:

• What do you want to achieve in the next year, three years, or five years?
• Could buying, refinancing, or investing help you reach those goals?

The current market conditions have created a window of opportunity that may not last much longer. Use this chance to position yourself for financial growth and success.

Conclusion: Don’t Miss This Opportunity

The real estate market has always been a sound investment, and today’s unique conditions make it even more attractive. With prices 25% lower and mortgage rates continuing to drop, this is a prime moment to act.

Whether you’re looking to buy, refinance, invest, or renew your mortgage, use a mortgage professional to help you navigate your options and make the best decision for your financial future. It’s the professionals that can show you how you can take advantage of opportunities like we have now.

Ready to explore your options? Contact me today to discuss how you can leverage the current market conditions to achieve your financial goals.

As expected, the central bank held the overnight rate at 4.5%, ending, for now, the eight consecutive rate increases over the past year. The Bank is also continuing its policy of quantitative tightening. This is the first pause among major central banks.

Economic growth ground to a halt in the fourth quarter of 2022, lower than the Bank projected. “With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.” The surge in interest rates has markedly slowed housing activity. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”

In contrast, the labour market remains very tight. “Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.” Wages continue to grow at 4%-to-5%, while productivity has declined.

“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians.” With weak economic growth for the next few quarters, the Bank of Canada expects pressure in product and labour markets to ease. The central bank believes this should moderate wage growth and increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

In sum, the statement suggests the Bank of Canada sees the economy evolving as expected in its January forecasts. “Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said.

However, year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

Today’s press release says, “Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In Congressional testimony yesterday and today, Federal Reserve Chair Jerome Powell said that the Fed might need to hike interest rates to higher levels and leave them there longer than the market expects. Today’s news of the Bank of Canada pause triggered a further dip in the Canadian dollar (see charts below).

Fed officials next meet on March 21-22, when they will update quarterly economic forecasts. In December, they saw rates peaking around 5.1% this year. Investors upped their bets that the Fed could raise interest rates by 50 basis points when it gathers later this month instead of continuing the quarter-point pace from the previous meeting. They also saw the Fed taking rates higher, projecting that the Fed’s policy benchmark will peak at around 5.6% this year.

Bottom Line

The widening divergence between the Bank of Canada and the Fed will trigger further declines in the Canadian dollar. This, in and of itself, raises the Canadian prices of commodities and imports from the US. This ups the ante for the Bank of Canada.

The Bank is scheduled to make its next announcement on the policy rate on April 12, just days before OSFI announces its next move to tighten mortgage-related regulations on federally supervised financial institutions.

To be sure, the Canadian economy is more interest-rate sensitive than the US.  Nevertheless, as Powell said, “Inflation is coming down, but it’s very high. Some part of the high inflation that we are experiencing is very likely related to a very tight labour market.”

If that is true for the US, it is likely true for Canada. I do not expect any rate cuts in Canada this year, and the jury is still out on whether the peak policy rate this cycle will be 4.5%.