Interest rates and the real estate market often go hand in hand. When rates go up, the market usually goes down, and we see fewer buyers actively searching for homes. When rates fall, buyers enthusiastically jump back in, housing sales pick up, and prices rise.
That sums it up in a nutshell, but the real estate market can be a lot more complex. In this post, we’ll explore interest rates and why they have become such a hot topic for anyone thinking about buying or selling a home in Peterborough.
The Impact of High Interest Rates on Buyers
Housing affordability is one of the greatest challenges of our time. It’s not just that high demand has put prices out of reach for many first-time buyers.
When rates are on the rise, you can expect your monthly mortgage payments to be higher. In addition, a more stringent stress test makes it challenging to qualify for financing in the first place. For example, imagine interest rates are currently 5%. You would need to qualify at 7% for the lender to approve your loan. For some buyers, this means not being approved at all, or for a lower amount than anticipated.
High interest rates aren’t all bad news, however. Those who can afford to buy under these circumstances almost always face less competition when placing offers. You’ll have more houses to choose from, and slower sales usually result in lower prices. If rates drop when your mortgage renews, you may be able to negotiate for better terms.
Thinking about buying a house in Peterborough? Here are some informative posts you may find helpful:
- A Walk Through the Neighbourhoods of Peterborough
- Is It Better to Buy or Sell First in Peterborough?
- How Does Getting a Pre-Approval Help Your Home Buying Dreams Come True?
Buying When Rates Are Low
When interest rates fall, it becomes easier to qualify for financing, and more buyers enter or re-enter the market. During the pandemic, the target rate by the Bank of Canada dropped to an unprecedented low, and the rest was history. We saw the busiest seller’s market the nation had ever experienced, where nearly every listing sold within days, often with multiple offers and over the asking price.
Low interest can make buying a house more affordable even when housing prices rise. Plus, more of your payment goes to the principal of your loan, which helps to build equity faster.
You can likely expect more competition from other buyers when house-hunting during low interest rates. You should also keep in mind that you might not get such a low rate when the time comes to renew your mortgage.
With so much at stake when buying or selling a house, it’s no wonder that people wait with bated breath for the next announcement from the Bank of Canada.
How Sellers Respond to Changing Interest Rates
As a buyer, understanding how interest rates affect a seller’s strategy is essential. The value of houses tends to increase dramatically during low interest and high buyer competition. Unsurprisingly, homeowners are very happy to list for a high price while hoping to earn even more.
When rates go down, homeowners are less than thrilled at the idea that the prices are not usually far behind. It’s not uncommon for some sellers to list at a price that exceeds fair market value, especially when the conditions change rapidly over the course of a month or two. As a buyer, you’ll want to work with an experienced real estate agent who understands the changing dynamics and who will ensure that you buy your new house at a fair price.
Where You Buy Matters
The real estate market is always nuanced and changing, and what happens in one region might be different than in another. For example, Toronto residents may decide they’ve had enough of the high cost of living, and rising interest rates can be the catalyst that makes them decide to relocate. Housing inventory in Toronto might see a slight uptick as homeowners prepare to leave the city.
The more people leave the GTA, the higher the demand becomes in lower-cost cities like Peterborough. In this case, the Toronto market softens while housing sales increase in the surrounding areas.
Fixed Rate Vs Variable Mortgages
A fixed-rate mortgage is just how it sounds; your rate is locked in for the entire duration of your term, which can range from 3 to 5 years. Fixed-rate mortgages are determined by bond yield rates rather than the Bank of Canada, which also means they can be more stable. The advantage is not having to worry about rates rising or sudden increases to your payments. You know exactly what to expect each month until renewal time. The disadvantage is you also won’t benefit when rates go down.
A variable mortgage can change every time the Bank of Canada announces an adjustment to the prime rate. The increments are usually small, but dramatic changes may happen rapidly if there is economic uncertainty or inflation is out of control. A variable-rate mortgage can cost less over the long term, but you will have to be prepared for the inevitable ups and downs.
Why move to Peterborough? There are more reasons than we can count. You’ll find a few in the posts below:
- Is Peterborough Dog Friendly?
- 5 Fun Things To Do In The City Of Peterborough Right Now
- Why Peterborough is Perfect for Families
How Can You Decide?
A mortgage broker can help you analyze the current situation and assess your resources to see what option is best for you. Someone with high risk tolerance might choose a variable mortgage, while someone who wants more stability might prefer a fixed rate. However, there is more to your decision than risk.
For example, if rates are currently through the roof, you might choose a variable mortgage in the hopes that they will go down. Alternatively, if interest is already at a historical low, it might make sense to lock it in with a fixed-rate mortgage.
When you know how interest rates affect the market, you’re empowered to make the best possible decision and pivot whenever an opportunity presents itself.
Do you want to simplify the process of buying or selling in Peterborough or the Kawarthas? We are here to help every step of the way. Reach out to team@jeffandkatie.ca or call 705-243-9797 for more information.
