Will I Be Able to Afford More House Next Year Than I Can Right Now in Canada?

When is the right time to buy a home in the current market? There are a lot of mixed opinions about the market right now, with one expert recommending selling now to get peak value for a home and others saying to wait for the market to correct. If you’re looking to buy a home instead of sell, you’re in a much different situation. You want to have many homes to choose from while staying within your budget or even saving money. Confused? That’s because this is a challenging market with many things to consider before buying, especially home affordability.

Working with your real estate agent can help you understand home affordability in your desired neighbourhood or region. Your agent will help you make an informed decision on the best move for you. The following factors will also play a role in your decision.

The Pandemic Housing Boom Is Correcting

Everything has changed since the pandemic, and the housing market is no exception. Home affordability took a big hit during the early stages of COVID-19. Suddenly, it seemed like everyone was buying a home– and fast. Supply was low, and demand was high, thanks to the influx of buyers and the limited number of homes on the market. This kink in the supply and demand chain led to rapidly increasing home prices. For example, more than 580,000 homes were bought in Canada in 2021, passing the previous year’s record set when 552,423 homes were purchased. The increase in home prices (up by a record 25.3 percent compared to 2020) over the last few years is not sustainable. Luckily, desperately buying a home without an inspection or being outbid for a home you love could end soon. The influx of home buyers has spurred the construction of more homes. All of this demand led to an increased number of homes being built, more steel and lumber production, and the scarce availability of new refrigerators.

As a result of the housing boom, the Bank of Canada (which sets the prime interest rate for the country) has stated that higher borrowing costs will be needed to help get inflation under control. That’s right; mortgage rates will be climbing along with the increase in housing prices. As frustrating as that may sound for most of us who need a mortgage loan to purchase a home, there may be some advantages to the rise in interest rates.

What Will Home Affordability Look Like in 2023?

If the Bank of Canada’s plan works, higher interest rates will help curb inflation and, in turn, help make homes more affordable and bring down the cost of living. We can’t know for sure what will happen, but the changes should be similar to the following:

• Interest rates: If you delay your home purchase until 2023, interest rates on most mortgage loans will likely have risen significantly. That means the overall cost of your home will be more when you factor in the interest payments on your loan. That doesn’t mean interest prices will be huge, but it could mean a jump by a few percentage points.
• Home inventory: The Liberals have pledged close to $20 billion to be put toward social infrastructure, especially affordable housing, over the next ten years. This hopeful increase in available housing may not save you from ever being outbid on a house again, but your chances will improve with more inventory to choose from. More housing options should also help avoid rising home costs resulting from bidding wars. More housing means you have a better chance of finding the home of your dreams.
• Home prices: Although we can hope these changes will eventually bring down housing prices, it will likely take more than a year to see a noticeable drop in housing prices. That said, housing prices should hopefully start to at least stabilize in the near future. Currently listed homes have already had price deductions instead of increases in some areas.

Will You Be Able to Afford More House Next Year, Though?

Of course, none of us can predict the future. We can only make an educated guess about how the market will react. If you find your dream home and can afford to buy now, you should. Buying now is still a secure option when we can’t be sure how the real estate market will perform in 2023.

You may find that inflation is impacting your finances more than anything. The cost of everyday goods is putting a strain on Canadians even more than rising housing costs. 

Since mortgage rates are rising, you may be better off buying a house now if you qualify for a lower interest rate. Getting a fixed interest rate will mean you are locked into the current rate and can avoid some steep increases that will likely come over the next few years. Even an interest rate slightly lower than next year’s interest rates will make a difference. For example, the monthly payment on a 30-year fixed rate loan at 2.99% could be $1,073, while it’s $1,184 on a 3.99% loan.

If you can be approved for a mortgage, have a down payment already saved, and are able to find a home that fits your needs and budget, there is no significant benefit in waiting to buy next year. Housing prices shouldn’t be that much lower, and mortgage interest rates will most likely be higher. One advantage to purchasing next year is that more houses should be available if you still haven’t found a place that ticks all your boxes. Moving now could be more beneficial than testing fate if you are lucky enough to find your dream home.