It's always interesting how the threat
of something bad happening in the near future can cause people to take action
in the present. People filling up their cars in anticipation of a gas hike is
one example, and it is even evident in the housing market. The threat of
increased mortgage rates from Canada's biggest lenders has caused an increase in
home sales.
Buy Now to Save Later
It goes without saying that a home
purchase is likely the biggest purchase most people make in their lifetime. It
is also true that securing a mortgage at a lower rate will save quite a lot of money
over the course of the mortgage term. For many future home buyers, the prospect
of mortgage rates increasing is enough to get them out there looking, whether
they are ready or not.
Many people were going to buy a new
home a year or two down the road, but have made the adjustments necessary to
speed up their plans to avoid those higher mortgage rates. In many cases, it
could make things a tad uncomfortable now, but the money that will be saved
later is worth it.
Impressive Statistics
In August, the number of existing
homes that changed hands in Toronto was 21 percent higher than August of 2012.
The 10-year average for August home sales in Toronto is 6,977 and this year's
August total was 7,569. The stats show that people are out there and they are
buying, and you can bet the threat of increased mortgage rates are one of the
main reasons.
Important to Do the Math
Of course, it is always important to
work out the numbers before reacting. With the surge in homebuyers trying to
save money by getting lower rates, the prices will inevitably go up. And if you
end up overpaying for a home, you might end up losing money in the long run.
All things being equal, saving
$10,000 or $15,000 in mortgage rates is wonderful, but if you end up spending
$25,000 or $30,000 more on the house to lock in those rates, it doesn't make
much sense at all. Do the math ahead of time and figure out your max purchase
price, and then feel free to jump into the market. If it seems like the actual
savings you'll get from buying now isn't so wonderful after all, you may want
to stick to your original schedule.
When the Rates Actually Increase
When the rates do jump and take
hold, it stands to reason that the real estate market will cool off for a
while. Many financial experts feel this is a good thing, because the price of
new homes will stop rising faster than consumer incomes. Eventually, the prices
should flatten out and there should be a balance between house prices and
incomes, which will cause sales to increase again. No one seems to like it when
mortgage rates increase, but sometimes it is necessary to keep the market
balanced and the economy running well.
