With Mortgage Rates Increasing and Prices Falling, Is Now the Right Time to Buy?

Ontario was a red-hot seller’s market for much of the pandemic, but now we are seeing buyer’s market conditions are the dominant market type. Buyers face less competition in today’s market but will experience more challenges with financing. 

With both inflation and interest rates rising, the cost of borrowing money is higher, while what you can get with that money is lower. Recently we saw price increases with consumer products that were hampered by pandemic shortages, like new cars, electronics, and lumber, and we also saw price increases on home sales, where the market had high pandemic demand but supply levels that hit multi-decade lows in many regions. 

With the onset of the pandemic and remote working, many people relocated to homes that better suited their new situation, whether it was additional home-office, outdoor space, or hunker-down-with-family space. This caused the pace of buying to rise dramatically and prices followed suit, to the point where first-time homebuyers were wondering how they could enter the market, if ever. 

This spring, the Bank of Canada began to raise its interest rates and commercial banks soon followed suit bringing mortgage rates as high as 6% - higher than they have been for years.1 

The increasing mortgage rates over the last few months are making it harder for some buyers to borrow the money they need to buy a home, effectively taking those buyers out of the market. This creates less competition for the supply of homes, all of which softens demand on the market and causes prices to fall. 

In addition to interest rates increasing, some homeowners need to sell their current home in order to buy their new home and are worried about the shift in the market. The worry of not being able to sell their current home soon enough to close on their next home is true for some home sellers and could leave them in a financial bind. These would-be homebuyers now seem to be holding back, resulting in an additional reduction of pressure on the market. This means there are fewer buyers competing for the homes available. 

With fewer buyers competing, prices are unlikely to get pushed up over asking. In fact, we are seeing more homes sell for under asking price and sit longer on the market. It appears that buyers are taking the time to make calculated choices at their own pace, and consequently at better buying prices. 

We’re seeing fewer instances of multiple offers and fewer bidding wars with a consequent step down of sale prices. Analysts suggest that this trend will stabilize over the coming months, nudging the market into more balanced market conditions. “And as the Bank of Canada takes its foot off the brake as economic activity slows, asset values and wealth should stabilize at a level that is more typical of a balanced economy.”2

This rebalancing is beneficial to buyers. We’re moving out of a seller’s market and into a buyer’s market which mean buyers have breathing space to address conditions such as financing and home inspection. 

One of the best things that you can do for your buying peace of mind is get pre-approved for a mortgage before you start house hunting, that way you’ll be targeting sustainable parameters and be able to shop with confidence. 

Since 2021, buyers have had to do a mortgage stress test. This financial assessment is to determine whether buyers can still make their mortgage payments even if rates go up. Currently the benchmark rate is 5.25%, or your mortgage rate plus 2%, whichever is higher. This rate is revised annually according to market conditions. 

The results may suggest that you need a larger down payment or a lower target price in order to qualify for a mortgage, but that’s better than being forced to sell your new home too soon for too little. The stress test is another tool to help keep ourselves within sustainable parameters.  

The mortgage stress test is federally mandated and does not apply to credit unions, which are provincially mandated, though some have adopted it as a safety measure for borrowers. Here’s what Desjardins spokesperson Valerie Lamarre had to say about the mortgage stress test: “We believe it represents an effective way to protect consumers against interest rate variations.”2

All of this is most relevant to buyers’ real estate investment, but if you are buying a home for the foreseeable long-term, then the question really comes down to what can you sustainably afford? What price of house, what size of mortgage, at what interest rate can you reasonably sustain through a few ups and downs as you enjoy your new home? The ups and downs of the market are on a long-term upward trend, so if you plan to live in it for a long while, it should hold its value, both as a home, and as an investment. 

If you are able to arrange favourable financing, now may be the conditions you need to get the house you want at the price you can afford. 


Are you ready to take the plunge into homeownership? FairSquare Group Realty can help. 

FairSquare Group Realty supports Canadians by providing real estate experiences with incredible rewards:sellerssave thousands in commissionand buyersreceive$2,000 cash back*when they purchase a home with one of our REALTORS®.Call 1-855-953-9533 to learn more.

*Cash back – How the Home Buying Service cash back works: FairSquare Group Realty will share with the buyer the commission it receives from the seller’s agent up to a maximum of $2,000 in cash back. No cash back if the commission received is lower than $5,000. Where available. 

On December 1, 2021, Purplebricks rebranded to FairSquare Group Realty. Blog articles published before this date were created under the Purplebricks brand but remain the property of FairSquare Group Realty.

In January 2019, ComFree Commonsense Network Brokerage rebranded to Purplebricks.