Has The Market Bottomed?
This week I discuss the current state of the market and what we are seeing out there on the ground. The big talk is still regarding interest rates and what they are going to do over at the BOC next week. Forecasting aside, lets focus on what they have done and how they CURRENTLY effect the market.
So with that, lets break down some numbers: Back in the peak of the market let’s say January 2022, if you were looking at a $1,200,000 home and planning to put 20% down ($240,000) you had the option at a Variable mortgage at 1.25% interest rate. This purchase would give you the following outline:
January 2022 Purchase
Purchase Price: $1,200,000
20% Down Payment: $240,000
Loan Amount: $960,000
1.25% variable rate.
25yr Am / 5yr fixed
= $3,882.98 / month
Now fast forward that to today and let’s assume you can get the same property for 20% below those peak purchase prices. That allows you to buy the same home for $1 with a 5.7% Variable rate mortgage. So that will bring the home down to $960,000. Layer the current mortgage details onto that purchase price and you get the following numbers:
Purchase Purchase Price: $960,000
20% Down Payment: $192,000
Loan Amount: $768,000
5.7% variable rate
25yr Am / 5yr fixed
= $4,808.36/ month
So today you are paying almost $1,000 more a month to hold a property that was purchased for 20% less. So always look long term. Typically speaking, as the rates went higher, the prices softened. And as the rates go lower the prices will strengthen. Always look long term. Purchasing at this time is an opportunity to simply borrow less and get the same. Yes there is a higher monthly payment as the money is more expensive, however I do not believe these rates will be long lived… Possibly 12 – 18 months in my opinion.
To accommodate the rate changes as soon as you can when they happen, you could also consider getting a variable rate now with some potential short-term increases. Or in my opinion the better option is to get a short-term fixed rate loan (2 years) so you know what your payments will be and then adjust in 2 years to the potentially lower rates ahead.
The goal here is to highlight that there is an opportunity at the moment to borrow less money to get into the same house compared to last year. And in the long run you will be better off assuming you can afford to continue to make the payments as you have simply borrowed less money to acquire the same asset.
Next we have the Bigger picture segment which highlights a few big things happening this month:
January 6th - Jobs #s – (104k jobs added – unemployment record low 5%) economists expecting 5k job add & 5.2 unemployment
January 17th - CPI inflation in November was 6.8% & now in December has dropped to 6.3%. The June 20220 peak 8.1%
January 25th - BOC rate announcement
And with that I will see you next week!