For years now it’s been a seller’s market in Kitchener-Waterloo, especially during 2020, 2021, and the first few months of 2022. When COVID hit, people didn’t know what was going to happen, but with the decrease in interest rates and the sudden need for more space, the market boomed. 2020 and 2021 were intense, with buyers frantically trying to find a home, often offering on multiple homes, over asking, with no conditions and no protection. Lots of first-time buyers were priced out of the market. In April 2022 the market began to cool, the Bank of Canada announced interest rate increases, and an influx of inventory was thrown on the market as sellers, seeing the prices increasing in January and February, got their homes ready to list. Seemingly overnight the entire market changed. For a few brief months we even saw a buyer’s market. As Realtors, our clients, families, and friends turned to us with questions about what was happening. With a few months of data to look back on now, and time to deliberate and discuss the factors that affect the real estate market, we’ve put together a few of the top questions buyers have been asking us. We hope this helps you reach your goals for 2023 if they involve buying a home.
When is the market going to bottom out?
This is the most common question we hear when talking to buyers these days, but this has also been a question that people have been asking for years: “When will the housing bubble burst?”
The market in Kitchener-Waterloo saw a few months’ respite over the spring and early summer months, but as sellers started to accept the new market conditions and prices, there has been some stabilization. Yes, prices are still down from where they were, but inventory continues to be down and we are seeing fewer sales overall than we did last year, or even the year before. As we all know, it’s not possible to see into the future, but looking back over the last few months we think it’s possible the sweet spot for buyers might have already passed. At the time it was hard to pinpoint this as the bottom. Homes were sitting on the market longer and it was giving buyers a fair shot at purchasing a home; we even saw the re-introduction of conditions into offers.
So, did the market already bottom out?
Over the fall we saw small increases in prices, not the 12%+ month over month we were seeing in 2021, but 1-3% increases, which led us to believe that there was a stabilization happening in the market where sellers were accepting the new prices and the interest rates were doing their job of decreasing inflation. Leading up to the holidays we saw another small decrease in overall prices. So are prices the lowest they’ll get? Who knows? But the interest rates were higher in November than they were in July, and inventory was lower. So depending on what happens this year with the interest rates and how this potentially affects the prices and inventory, July may have been the sweet spot with the lowest prices and lowest interest rates so far.
So, is now still a good time to buy?
Yes, we still believe that time in the market will always outweigh timing the market. As we mentioned in our previous blog, “Purchasing in KW: Why It’s Still a Good Decision,” we feel that Kitchener-Waterloo has a strong real estate market and will continue to be a great place to buy for years to come. Even if the prices continue to decrease for another year, in the long term, we still believe it’s a good investment to buy here. Plus, if you wait too long, the interest rates could be higher, prices might be lower, but sellers might be less inclined to sell, so you’ll have fewer options to choose from. Waiting for the bottom of the market isn’t the only factor to consider when you’re looking to purchase. Interest rates, the overall economy, and inventory on the market are all considerations when looking to buy. The best advice we can give is when you’re ready to buy emotionally and financially, then that’s the right time to buy.
Why should I apply for a mortgage pre-approval?
A mortgage pre-approval will help you lock in an interest rate. If interest rates rise, you will be locked in at the lower rate for 3-4 months (depending on the where you get your pre-approval). This means you have that time to close on a property. On the other hand, if rates decrease you will get the lower rate regardless. In a market like we are seeing now, speaking to an expert about what is happening with interest rates, what products are available, and what will be best suited for you and your needs is a really important factor to consider before purchasing. A good mortgage agent will take the time to educate you so you know what you’re getting into and what your options will be over the next 2-5 years.
When should I apply for a mortgage pre-approval?
Before you start looking at homes. Your idea of what you’ll be able to afford vs. what you can actually afford might be different. This means that if you start looking prior to getting the pre-approval you could either be looking at homes that are below your budget, in which case you might get discouraged that you aren’t finding anything you like. Or you might be looking at homes above your budget, and you might be disappointed to find that what you thought you were able to afford, you can’t. This makes the homes in your actual budget look less ideal to you, which can really put a damper on the entire experience.
This is why I always say that the mortgage pre-approval is the first step in the home buying process. This is vital information that you, your mortgage agent, and your Realtor will need to help guide you through the process. A mortgage pre-approval isn’t a guarantee, but it is a pretty good idea of what the bank or lenders are willing to lend you.
My best advice would be to figure out the financials first so you can enjoy the house hunting experience knowing you can afford the homes you’re looking at, which will hopefully lead to finding your new home quicker and with less stress.
What’s the difference between going to the bank and using a mortgage agent?
In very simple terms, a bank offers one product: their product. A mortgage agent works with a variety of lenders, including the big banks, so they do the “shopping around” to find the best product for you.
Mortgage agents also tend to be more informative and communicative. The entire home buying process revolves around communication, and the better the communication between your team (Realtor, mortgage agent, lawyer, etc,), the better the experience will be!
If you have never used a mortgage agent before, consider speaking with one before going back to the bank. The initial call is always free, and typically mortgage agents are paid by the lenders, but confirm this with them in your initial call so there are no surprises. If you need a recommendation, don’t hesitate to reach out as we have a couple great mortgage agents we work with who would be happy to help you out!