In the real estate industry, as in most markets, what goes up, must come down. We have watched house prices move overnight into territory we haven’t seen in a decade, and then just as quickly, slip into what seems like a hibernation period! How would we ever plan ahead with these movements? Without the crystal ball, we don’t have a clear picture, but what we can do is make the best of these times…to find the opportunities!
There are many now in fact! Here are a few opportunities you can consider while we watch the slow recovery of our Canadian economy (fingers crossed for a quick one!)
1. Great time to buy! A first-time buyer may see this as an expensive proposition as rates are higher than they have been over the past years, however, thanks to the Federal Government cooling the market, the house prices will adjust because of it, and therein lies the opening for a reasonable purchase price.
We tend to put most of the focus on the cost of “borrowing” (rate), vs the cost of “buying”. But what if the difference between a purchase price of $400,000, 6 months ago and today is $20,000 less, so $380,000 for the same home? What is the real cost/savings with today’s rates?
Well, if our rates are 5.50% (5 year fixed) today, vs 4.20% 6 months ago, the outcome would look something like this:
May 2022
Purchase price: $400,000 Down payment: $100,000 Rate: 4.20% Balance at end of 5 years: $255,500
November 2022
Purchase price: $380,000 Down payment: $100,000 Rate: 5.50% Balance at end of 5 years: $249,700
**Note: I’ve kept the payment the same in both scenarios for 5 years ($1700/month).
So, you can see it’s important to understand the actual costs in different market environments.
2. Focus on debt reduction. Again, with rising rates, it is always a good time to save interest and costs where possible. Even with rates at 5-6% for mortgages, if your other debt cost is 10-20%, there is obviously reason to consider this type of refinance if you have the equity. We can run the math on this as well to showcase the advantages of unsecured debt payout.
3. Home improvements! While you are waiting to decide on your next move, improving your home has become a favorite pastime! It’s the best way to use your home equity as it’s putting money back into your own bank account (for the most part-ask me about best return on renovation statistics). Plus…renovations can be fun and rewarding! Whether your project is big or small, you want the flexibility to make moves on decisions, so having access to your home equity via a HELOC (Home Equity Line of Credit), or a refinance or improvement loan will be a great plan to have in place! We can review this option together to see if it makes sense. For example, if your existing mortgage rate is very low and you have years to go, but have home equity available, a separate line of credit would likely make the most sense. But if you are renewing in the next year, maybe re-structuring now will pay off. Let’s talk about what works for you.
There is always a silver lining in what can feel like dark economic times. If we don’t have the fluctuations in our market, new buyers and investors could never get in on the fun! And even if you are in the market already, and witnessing this cloudy forecast, just remember what goes up, always comes down and vice versa!!