How first-time homebuyers can enter the market amid higher rates and inflation

Entering the housing market can be daunting, especially with higher interest rates and inflation is in flux. However, there are promising signs and innovative solutions that can make homeownership more attainable in this environment. Many first-time Canadian homebuyers continue to navigate these challenges with creativity and resilience. In fact, a recent Mortgage Consumer Survey by the Canada Mortgage and Housing Corp. (CMHC) indicated a growing shift towards non-traditional methods of buying homes, showcasing the determination among today’s buyers.

What homebuyers are doing differently

• There’s a significant shift towards non-traditional methods of homebuying, such as digital platforms for finding homes and funding mortgages.
• Fixed-rate mortgages remain the most popular option, though the traditional five-year term is losing ground to shorter terms.
• Almost half of all mortgage consumers now choose brokers as often as lenders, with first-time buyers and Ontario and BC residents more likely to use brokers.

What buyers can expect in the short-term

Although we have yet to hear any rate announcements for the month of July, the market and economists are pricing in another rate drop (although you never know for sure). If interest rates drop later this month, it could encourage more potential homebuyers, especially first-time buyers, to think about getting off the sidelines and entering the real estate market this fall. This is because a drop in interest rates makes mortgages more affordable, and changes customer sentiment, and in a time when inventory continues to grow and prices in some areas are dropping, it shifts the market to a buyers’ market, potentially. While the rate drop may not be large, compared to the increases, the sentiment shift in the media and market always affects buyers.

The market is becoming more favourable for buyers compared to the last few years, especially in major cities. However, while a decrease in rates can nudge some buyers off the sidelines, we shouldn’t expect a massive surge in demand, as previous rate drops have not led to a significant increase in buyers. If rates stay the same, the market is likely to remain stagnant, creating a lot more hesitance among buyers. If rates do drop, it might signal to cautious buyers that rates could continue to fall in the coming months or years, making now a more attractive time to buy.

Finding opportunities amid higher interest rates

For first-time homebuyers, there’s definitely a silver lining in today’s housing market. While interest rates remain higher than usual, they are slowly starting to decline, providing some relief to Canadians. This gradual decrease in rates is a positive sign that indicates a more stable borrowing environment. Not to mention, home prices are beginning to drop. This combination of easing rates and decreasing prices can offer a unique opportunity for first-time buyers to enter the market with more confidence and opportunity. There have also been some hidden gems, as homes that sit on the market for a longer period end up being sold at lower prices than the sellers expected or hoped.

What homebuyers can do in this environment

To navigate these conditions successfully, buyers can start by creating a feasible financial plan. This will help you understand your monthly expenses and savings, allowing you to begin the buying process with greater clarity and awareness of your budget and financial capacity. Getting a mortgage pre-approval is a great next step. In that time, buyers can decide which mortgage type is right for them. Fixed-rate mortgages offer stability, while variable-rate mortgages can save you money if rates drop. Before making any decisions, be sure to assess your risk tolerance and financial flexibility. In this time, it’s important to consult with a knowledgeable mortgage specialist at a company such as those at Homewise, who can help you shop around for the best mortgage that aligns with your specific circumstances, budget and homeownership goals.

Saving for a down payment with higher inflation

Getting the funds together for your down payment while the cost of living only gets more expensive is challenging, but it’s possible. Nowadays, it’s common for first-time buyers to get help from a family member in the form of a financial gift when buying a home. In fact, 38 per cent of buyers received an average of $77,487 in down payment gifts, according to the CMHC survey. Research also shows that only a third of buyers take full advantage of tax-free savings accounts like RRSPs and FHSAs, which can provide significant financial benefits when buying a home. Not to mention, despite the First-Time Home Buyer Incentive being discontinued, there are still several helpful resources that first-time buyers can use to get their foot in the door quicker. Some of these resources include the Land Transfer Tax Rebate, Home Buyers Plan, and First-Time Home Buyer Tax Credit.

By leveraging innovative solutions and staying informed about market trends, first-time homebuyers can navigate the challenges of higher rates and inflation with confidence. With careful planning and the right resources, homeownership remains a goal within reach, even in today’s complex economic environment.