How To Benefit From Rising Interest Rates In Toronto

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By now, you’ve undoubtedly heard about the latest interest rate. It’s the biggest jump since 1998, and all of the news outlets are talking about it. The Toronto real estate market has already shifted since the first interest rate increases began in March and April. As the cost of borrowing became more expensive, many potential buyers decided to pull out of the market. With less competition, those still searching had more options available, and homes finally began to drop in price. In June, the average cost for a house fell to $1,146,254, down from $1.3 million in February. And that was before the latest increase brought the target interest rate up to 2.5%.

Although the effects are still unknown, it’s possible that we could see a further shift where it becomes a truly balanced market. If this happens, both buyers and sellers could use the situation to their benefit.

Could Higher Interest Rates Be A Good Thing?

The immediate effect of higher interest rates might be painful to the real estate market, but can benefit everyone in the long term. It’s no secret that inflation has risen dramatically over the last two years as the cost of living begins to exceed wage increases. Rising interest rates combat inflation by encouraging people to save money rather than spend it. The result is a stable economy with slow and steady growth and far less likely to crash.

Want to read more about how current events are shaping the real estate market? Here are some other posts you may find interesting:

How Rising Interest Can Benefit Sellers

At first glance, rising interest rates appear disastrous to current homeowners who want to sell. Prices have gone down, homes are spending more time on the market, and buyers are starting to negotiate. How is any of this helpful? 

When interest rates increase suddenly, you might think that buyers will get scared off. However, the first thing we’re likely to see is a burst of activity from buyers who obtained lower-interest pre-approvals from earlier in the year. They’ll be highly motivated to act now – before the new rates kick in. 

Another advantage that many homeowners overlook is that they can now sell first, and then buy. During the housing boom earlier, you wouldn’t dare put your house on the market without first securing another one. Time is on your side now, and you don’t have to frantically buy the first home that becomes available.

Selling first helps you financially, letting you know exactly how much you can afford to invest in your next home. And in a balanced market, you’ll have time to search to find the house that’s just right for you, without worrying that the price will jump while you’re between properties.

Selling first or buying first each has pros and cons, but it’s a much easier decision to make in a stable market. You can read more in our article right here.

How To Make The Most Of Your Sale During A Balanced Market:

Choose your updates wisely. When putting it on the market, you always want your home to look its best. However, you want to ensure that every dollar you invest comes back to you multiplied and that you’re not wasting any money on unnecessary upgrades. Before committing to any project, check with your real estate agent to see what updates appeal most to buyers in your neighbourhood.

Looking for ideas for your next home improvement? Here’s How To Make Your Home Appeal To Buyers As The Market Shifts.

Price your home to attract the maximum amount of attention. The biggest mistake we’re seeing sellers make is setting their price according to what they would have earned in February. However, you will get better results by working with the market as it is, not as it was. This means setting your listing price low enough to appeal to buyers without giving up on its value. Once again, a real estate agent can guide you to an attractive price for the current market.

Can Rising Interest Rates Actually Help Buyers?

First-time buyers may struggle as rates go up. It doesn’t just mean higher monthly costs and paying more interest over time. It also affects how much you can borrow and whether you can qualify for a mortgage in the first place.

However, if you’re selling and then buying, rising interest rates can actually help you. You’re almost certainly going to sell your house for far more than you paid for it. The proceeds from your sale then go to your new home, which decreases the amount you need to borrow. Add that to the lower cost of housing, and you stand to earn money when all is said and done. 

Lower housing prices and higher interest rates mean less competition, which is the best news of all for anyone who tried to buy a house during the crunch of the last two years. 

Finally, there are options available! You can choose your new home carefully, and you may even be able to negotiate the terms you want.

The first thing we recommend for all buyers is to get a pre-approval because it allows you to lock in the lowest possible interest rate for 90 to 120 days. If rates go up again, you’re protected. 

In the unlikely event that they decrease, you get the lower rate. For example, if you got a pre-approval as early as May, the last two interest rate hikes wouldn’t affect you at all.

Buying a house in Toronto in this market might require some creative solutions. Here are some ideas to get you started:

Even though the last rate was a significant jump relative to previous increases, rates overall are still low. Balanced markets rarely last long, but they offer several advantages and make the experience far less stressful for buyers and sellers.

Are you ready to make a move and want some guidance on your next steps? Reach out today, and we are happy to help.