{"id":20280,"date":"2022-07-20T10:10:00","date_gmt":"2022-07-20T17:10:00","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=20280"},"modified":"2022-07-19T10:25:41","modified_gmt":"2022-07-19T17:25:41","slug":"house-prices-are-coming-down-interest-rates-are-going-up","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2022\/07\/house-prices-are-coming-down-interest-rates-are-going-up\/","title":{"rendered":"House Prices are Coming Down \u2022 Interest Rates are Going Up"},"content":{"rendered":"<p style=\"text-align: justify;\">This year, Canadian house prices are going down, and it looks like housing is becoming more affordable. Prices have fallen every month since February, and bargain hunters are getting excited. However, they may be making a big mistake. While prices are going down, interest rates are going up. Those who buy \u201call cash\u201d are certainly paying less, but Canadians who have to take out mortgages may not be \u2014 particularly if their loan amount is high relative to the value of their home.<\/p>\n<p style=\"text-align: justify;\">In this article, I will explore Canada\u2019s cooling housing market, and pose the question of whether housing is really getting cheaper.<\/p>\n<p><strong>Price isn\u2019t the same as cost<\/strong><\/p>\n<p style=\"text-align: justify;\">To understand why housing going down doesn\u2019t necessarily make it cheaper, you need to know the difference between price and cost. \u201cPrice\u201d is what the buyer gives the seller; \u201ccost\u201d is whatever expenses the buyer incurs in making the sale. The cost of buying a house includes :<\/p>\n<p><em>\u2022 The list price;<\/em><br \/>\n<em>\u2022 Interest on the mortgage;<\/em><br \/>\n<em>\u2022 Brokers\u2019 fees; and<\/em><br \/>\n<em>\u2022 Lawyers\u2019 fees.<\/em><\/p>\n<p style=\"text-align: justify;\">Combined, all of these costs can make a house much more expensive than advertised. Potentially, a house can fall in price yet rise in cost for an average buyer.<\/p>\n<p><strong>House prices are going down<\/strong><\/p>\n<p style=\"text-align: justify;\">When it comes to list prices, housing is unquestionably getting cheaper this year. The average house price in the Greater Toronto Area (GTA) has fallen 14% since February, and it\u2019s a similar story nationwide. If you have all the cash you need to pay for a house, then the total cost is going down. But we still need to look at the matter of interest rates.<\/p>\n<p><strong>Interest rates are going up<\/strong><\/p>\n<p style=\"text-align: justify;\">Interest rates are going up this year, which is causing the total cost of buying a house to go up (holding price constant). In 2020, you could find banks like Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) offering mortgages with rates as low as 2%. Today, a typical CM mortgage is closer to 5%. What difference does that make? Potentially, a pretty big one. A 2% interest payment on a $1 million mortgage is $20,000. A 5% interest payment on a $900,000 mortgage is $45,000. So, the $900,000 house is actually more expensive than the $1 million one due to the higher interest rate.<\/p>\n<p style=\"text-align: justify;\">Also, you\u2019ll want to think about the matter of getting a mortgage in the first place. Banks like CM know that people are less able to afford mortgages when interest rates are higher, so they often tighten lending standards during times like these. The government also requires them to have certain standards, such as requiring a down payment of a certain size, having enough income to pay interest, etc. So, don\u2019t expect getting a mortgage this year to be as easy as it was in 2020.<\/p>\n<p><strong>The verdict : It depends on the size of your down payment<\/strong><\/p>\n<p>To answer the question I started this article with (\u201care houses getting cheaper?\u201d) :<\/p>\n<p style=\"text-align: justify;\">It really depends on the size of your down payment. If you have enough cash to pay for a house, then yes, the cost has come down. If you have just a 5% down payment and are in a city where prices have only come down 10%, then no, the cost has not really come down.<\/p>\n<p><a href=\"https:\/\/www.fool.ca\/2022\/07\/16\/interest-rates-are-houses-actually-cheaper\/\" target=\"_blank\" rel=\"noopener\">Interest Rates : Are Houses Actually Cheaper?<\/a> by Andrew Button | The Motley Fool | MSN<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This year, Canadian house prices are going down, and it looks like housing is becoming more affordable. Prices have fallen every month since February, and bargain hunters are getting excited. &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2022\/07\/house-prices-are-coming-down-interest-rates-are-going-up\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-20280","post","type-post","status-publish","format-standard","hentry","category-market-updates"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>House Prices are Coming Down \u2022 Interest Rates are Going Up &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2022\/07\/house-prices-are-coming-down-interest-rates-are-going-up\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"House Prices are Coming Down \u2022 Interest Rates are Going Up &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"This year, Canadian house prices are going down, and it looks like housing is becoming more affordable. 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