In the recent update from the Bank of Canada in December, many people were hopeful that interest rates wouldn't go up. The Bank kept the overnight rate at 5% for the third time, mentioning that the slowing economy was helping lower inflation to its 2% goal.

Most economists think interest rates will start going down around mid-to-late 2024, but if important economic signs change, the direction of interest rates might change too.

With the chance of lower interest rates coming soon, should people wanting to buy homes wait to get a better rate?

Or is it smarter to buy a home now before more people compete and drive up home prices? Here's what you need to know about when to buy and when to wait.

Making the Most of Lower Rates: The Good Side of Waiting

In times with low interest rates, buyers usually have more buying power, letting them afford homes they couldn't before. This means you might get a bigger home with more bedrooms or even a pricier home in a popular neighborhood.

The main advantage of waiting for lower interest rates is having lower monthly mortgage payments. This means paying less interest over time and possibly feeling more financially stable, leading to more savings for your family.

Since home prices will probably go up when interest rates go down, buying a home at a lower interest rate gives you a chance to build up a lot of equity.

For example, a Victoria home bought in April 2020, when interest rates were at their lowest, the benchmark price of house was $915,400.  Today that same house is $1,185,10 - that's a $269,700 increase over the last four years.

Why Waiting for Lower Interest Rates Could Cost More

When the 5-year fixed mortgage rate dropped in 2020, home prices went up. When the rate hit its lowest in December 2020 at 1.39%, the national benchmark price reached a record high of $595,200. After that, the benchmark price kept going up for 15 months.

What does this mean for homebuyers in 2024?

Even though lower interest rates might let you buy more, there's a chance this could be balanced out by a surge in home prices.

As interest rates go down, more people will likely start buying homes, making the competition higher and keeping prices up. In a really competitive market, there's a higher chance of bidding wars, leaving buyers with less power to negotiate.

That being said, for any of this to happen, interest rates have to drop first, and predicting exactly when that will happen is a bit uncertain. The last time the Bank of Canada lowered the overnight lending rate was in March 2020, responding to the COVID-19 pandemic – an event nobody could predict.

By choosing to wait, you might end up waiting for a long time, possibly longer than you expect. During this time, you might miss out on good deals and opportunities in an unpredictable market.

Stay Ahead of the Game with Higher Rates

Higher interest rates usually keep many potential buyers waiting, so buying during a high-interest rate time gives you more choices and control.

With less competition, you have more power to negotiate, more houses to look at, and more time to decide. You probably won't have to worry about competing with many offers, and you might even get lower prices. In slower markets, sellers often reduce their asking prices to attract more buyers.

Although higher rates mean higher monthly mortgage payments, it doesn't mean you're stuck with that rate forever.

Most rate terms are 3-5 years. During your amortization period, interest rates are likely to go up and down. If rates go down, you can take advantage of a lower rate when renewing or refinancing your mortgage for a better rate.

This strategy could save you money in the long run, especially if you bought your home when prices were lower and could lead to paying off your mortgage sooner than if you bought when prices were higher.

Deciding to Buy Now or Wait: Tailoring to Your Situation

Deciding whether to buy a home now or wait for potential lower interest rates is a big financial decision.

Everyone's situation is different, so the decision should fit your unique circumstances. If you plan to stay in a home for a decade or more, finding the right house might be more important than immediate affordability.

On the other hand, if you're a first-time buyer focused on entering the housing market, financial considerations might be more crucial. The best action depends on a balance of your personal needs, market conditions, and financial readiness.

Have questions about mortgages, interest rates, or the Victoria real estate market?

Call/text 250 213 9389 or email me at kerry@kerrydavies.com

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