If there’s one thing we’ve learned about real estate, it’s that you can really blow it by playing the waiting game. This isn’t just about waiting to see a home or taking too long to put in an offer. It’s also about waiting for the right time to buy. While the market gives us clues about price trends, prices tend to go up, not down. With this in mind, here’s our advice on when it makes sense to wait, with an important warning about what can happen when you wait too long to buy.
First, The Right Reasons to Wait
We would never recommend buying based on pricing alone. There are many reasons it makes sense to wait to buy a home including:
You don’t have a big enough down payment yet:
Not having a big enough down payment can add financial burdens you really don’t want to worry about. Buying a home is about smart investments, not getting hopelessly into debt. If you don’t have a big enough down payment you reduce your overall purchasing budget OR increase your mortgage payments. As a rule, you need:
- 5% for homes priced below $500,000
- 5% if the first $500,000 plus 10 per cent of the remaining amount for homes priced between $500,000 and $999,999
- 20% for homes $1 million or more
If you have a down payment under 20% you need default insurance to get a mortgage which is an added expense. Ideally, you should target 20% for your ideal down payment because in Toronto it’ll be hard to find a home under $500,000.
You’re experiencing some uncertainty in your life:
Whether it’s an unstable career, an unstable relationship, or unstable finances, unstable anything in your life means it’s probably not time to commit to buying a home. Let things settle down a little so all that indecision in life won’t impact your ability to pay your mortgage.
The real estate market isn’t ideal:
There are some real estate market situations that could be good reason to wait. This would include high interest rates, or low inventory. Both things will impact your mortgage payments and might even interfere with your ability to pass the mortgage stress test. In this case what we advise is you make sure you get mortgage pre-approval so you understand a) If you will qualify and b) for how much. Although we always advise our buyers to get pre-approval, in a high interest sellers’ market it’s a must. This is because a sellers’ market means there’s less inventory, so the competition is high. It’s bidding war city, the most stressful time to start a house hunt. As a result, you could end up overpaying for a home. With pre-approval you can go into bidding wars better prepared because you know your ultimate budget cap. Also, we’ll always discourage you from overpaying, and use our ninja negotiation skills to ensure you come out the winner.
Now with that said, there’s one way to make high interest rates work for you and it’s a bit of a gamble. If, IF, there are clear indications high interest rates will drop within a year or less AND housing prices have been flat or (less likely) decreased month over month or year over year, you could take advantage of low prices by opting for a variable mortgage. Since you’ll see interest rates drop over the next year, you’ll find yourself in a comfortable position without having stretched yourself too thin. You can either continue to ride it out with your variable mortgage to see how low it goes or lock in to a lower interest rate when you feel it’s right. We go into more detail about this strategy below.
Looking for more homebuying insights? Read these posts next:
- Why Now is Actually a Good Time to Buy a Home in Toronto
- How to Buy an Affordable Home in Toronto
- Should You Buy a Toronto Tear-Down?
Second, Hoping House Prices Will Drop
As mentioned, the thing with house prices is they tend to rise. So, waiting in the hope prices will drop is never a good strategy. Now you might be thinking, but wait, you just said above that if the real estate market isn’t ideal, I shouldn’t buy. Yes, we did. And honestly, it does get complicated. For example, when we compare the average prices in January 2023 and 2024, there actually is a slight dip year over year of 1%. However, when we look at what impacted the average price, it was drastic decreases in townhomes at 8.8% and condos at a less worrying dip of 2.7% on top of the higher interest rates. However, both detached and semi-detached homes saw increases of 5.7% and 4.3% respectively regardless of higher interest rates. So again, it’s so important to consider the current market, the type of home you want and how conditions impact your goals and decisions.
Third, All Time High Interest Rates
Since interest rates have been at uncomfortably high rates for the past year, waiting seemed to make sense. Now that rates have stabilized, however, you might be waiting for a different reason, which is that you know rates are sure to start dropping. And that’s true. But you have to consider something else and that’s that we’re seeing tightening market conditions compared to a year ago. So, while you can sit and wait for interest rates to drop, guess what’s going to happen when they do? Every other buyer who’s been taking up space on those fences with you waiting for the rate to drop will be clambering onto the market. Then what?
Well, sellers have also been sitting on the sidelines because they feel prices are too low. So suddenly buyers create the perfect storm for sellers because that gang of homebuyers is only going to achieve one thing: Pushing housing prices higher. Low inventory and high demand equal a seller’s market which means the limited sellers on the market will sit back and watch as buyers fight it out at the negotiation table with the return of multiple offers. Sigh. And that sucks for you.
So, what do you do? Apply for a variable mortgage.
This might sound like a horrible idea but hear us out. You’re currently facing limited risk if you go the variable mortgage route because everyone expects to see interest rates start dropping. Meanwhile, you get in while housing prices haven’t started to rise, because most buyers are still watching rates waiting for their chance to qualify for a mortgage. As a result, you face little competition, find an anxious seller looking for a buyer, and then bam, you’ll see interest rates start to drop, and you’re a shoo-in to take advantage of it. If you start nervously tugging at your shirt collar at this idea, no worries. You then lock into a rate you feel comfortable with by switching to a fixed mortgage. Just make sure you understand any fees your lender might charge.
Keep reading these posts about buying a home in Toronto here:
- 10 Signs a Home is “The One”
- Can You Skip Buying a Starter Home in Toronto?
- Is it a Good Idea to Buy a Home Without Seeing it IRL?
The Bottom Line
The best time to buy a home is when you feel financially stable, have a respectable down payment saved and know you can pass the mortgage stress test. Since odds way heavily on the side of upward price trends regardless of the market, once you have your finances in a neat little row, it’s the best indicator for timing your house purchase right. Waiting for prices to drop on the other hand, is most assuredly the wrong strategy since this is very unlikely to happen.
Don’t let the waiting game cause you to pay more for your home. If you’re financially and mentally ready to start your home search, there’s no time like the present. We offer some of the best real estate agents Toronto offers ready to negotiate the best possible price for your dream home. Give us a call at 416.291.7372.