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With the real estate market in flux, many Canadians are wondering what to expect from home prices in 2023. If you’re thinking about buying a new house, or you’re considering getting the equity out of a home you already own, it can help to know what the experts are saying.
During the pandemic, low interest rates and increased remote work caused house prices to surge across Canada—especially in the suburbs. By February 2022 in fact, the country’s housing market was breaking records.
Now, as we close in on the end of the year, not only have rising interest rates contributed to the end of the pandemic-era housing market boom, experts say both real estate prices and sales will continue to fall into 2023.
According to the Bank of Canada, the Canadian economy rebounded from the effects of the pandemic “stronger and faster than we anticipated.” This led to excess demand for goods and services, alongside growing inflation (a general increase in prices).
Since the Bank of Canada uses its policy interest rates to control inflation, these rates:
As we look ahead to 2023, most experts are in agreement on several factors likely to drive real estate trends:
So what does all this mean for home sales?
In his October housing market outlook, TD Bank economist Rishi Sondhi concluded, “Ultimately, we think sales will bottom out at about 20% below their pre-pandemic levels in the early part 2023, while remaining very subdued for the rest the year.”
With mortgage interest rates trending upward—and real estate sales trending down—what should homebuyers and borrowers keep in mind as 2023 approaches?
For starters, if you began house-hunting earlier this year—and you haven’t adjusted your search criteria—it’s worth checking to make sure you’re not:
It’s also important to be aware of the connection between shifting house prices and the amount you can borrow against your house with a home equity loan or HELOC (home equity line of credit). Remember: From a lender’s perspective, the amount of equity you have in your home is equal to your home’s current market value minus the amount owing on your mortgage.
Finally, if you are considering getting a first or second mortgage, experts say the decision to choose a fixed or variable interest rate is key.
Before choosing one over the other, it’s a good idea to:
While this question is widely debated, National Bank says many economic experts believe that—in most cases—variable-rate mortgages are more beneficial in the long-term, compared to fixed-rate mortgages.
If you’re struggling with the question of what to expect from the housing market in 2023, you’re not alone. Figuring out the right time to buy, sell, or leverage a home can be challenging. That’s why TD mobile mortgage specialist Marco Torto suggests house-hunters focus on what constitutes the right time for them. “In my experience, the idea that there’s a perfect time to buy is really unfounded.” According to RE/MAX Canada meanwhile, when making such a big, important purchase in a rising-rate environment, it’s critical that you figure out the dollars and cents of your household budget, contact and compare lenders and rates, and learn about the various terms and conditions.
Because Bank of Canada rates are used to control inflation, when these rates rise, mortgage interest rates rise as well. This makes getting a mortgage more difficult and more expensive. With potentially fewer buyers able to qualify and/or afford a mortgage, house sales can drop off, cooling the real estate market and causing home prices to fall.
Even in an unsettled market, it’s worth getting a mortgage pre-approval if you intend to search for a new home. Not only are pre-approvals free, they’re typically valid for 90-120 days, allowing you to lock in a specific interest rate. They’re also a great way to clarify the home price you can afford.
One way to stay more in control of your mortgage is to choose a shorter term. Although a 5-year mortgage term is traditional, some lenders offer 1 to 4-year terms as well. By committing to a shorter term, you’ll have the opportunity to change your mortgage payment options that much sooner.
With a fixed mortgage rate, the amount of interest you pay (and therefore, each of your mortgage payments) stays the same for the duration of your term. With a variable mortgage rate, the amount of interest you pay changes in response to your lender’s fluctuating prime rate.
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