Now that we're into 2023, most Canadians have almost gotten used to the rising interest rate announcements. Yes, inflation is taking its toll on the rising cost of living, but if you’re a potential homebuyer, the current environment is showing some silver lining. Between August and September, home prices in Canada fell 3.1 per cent – marking the largest monthly decline since 1999. By the first quarter of 2023, some experts expect prices to dip close to 20 per cent. So, although rates are on the rise, housing prices across Canada are declining in the buyer’s favour – which means a buyers’ market is expected to be on the horizon for 2023.

Saving for a down payment just got a little easier

When it comes to buying a home, the heaviest lifting for many Canadians is coming up with a down payment. With the price of homes dropping monthly, along with many pundits expecting a further decline in the coming months, buyers today need less money to make a down payment.

Further, there are federal government programs and incentives available to help buyers save for a down payment. A good one in particular is the Home Buyer’s Plan, which allows you to withdraw up to $35,000 tax free from your Registered Retirement Savings Plan (RRSP) when you buy or build a home. If you’re buying a home with another person who’s eligible, the two of you can both take advantage of this incentive and withdraw up to $70,000 tax free from your RRSPs. While you eventually have to pay that money back to your RRSP, it’s still a great way to increase your down payment without impacting your savings long term.

Get pre-approved and lock in a rate

A mortgage pre-approval gives you a general understanding of what kind of mortgage you’ll be eligible for and the size of down payment you’ll need, helping you set realistic expectations for what you can afford. Not only does this simplify the homebuying process, but it also provides an overview of your buying power before you jump into the market.

When you apply for a mortgage pre-approval, the lender will offer you an interest rate that you can lock in for up to 120 days. Rates look like they may continue to increase, so doing this would be extremely useful in the current environment.

Be mindful of your budget

With conversations of a recession on the way and the cost of living inching higher, it’s important to ensure you’re not spending beyond your means – that goes for your home, too. Setting a clear budget, assessing your income and factoring in other daily household expenses is essential to ensure you can comfortably afford the home over the short and long term.

This is where the stress test becomes useful. CMHC introduced the mortgage stress test as a measure for lenders to determine a buyer’s home affordability, and their ability to remain stable in the face of unemployment or rising interest rates.

Shop around different lenders

Most Canadians still make the mistake of going directly to their bank for a mortgage without shopping around. It’s a really outdated and inefficient way to finance one of your biggest investments, and minimizes your chances of potentially saving thousands of dollars.
Outside of the banks, there are other lenders such as credit unions and monoline lenders that also offer strong mortgage products and features that may be more suitable to your needs. For instance, our team at Homewise has found that many first-time buyers will break their mortgage before the end of their five-year term. What’s important to point out here is that some lenders will charge large penalties for doing this – but most buyers aren’t aware of this fee when signing their contract.

While rates and the cost of living are rising, some housing prices are declining and creating an entry opportunity for many buyers. So, if buying a home is a goal for 2023, it’s best to get prepared sooner rather than later.

The key to a successful mortgage and homebuying process is to be fully informed of your options and financially ready to make this milestone investment.