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.
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.