On Wednesday, the Bank of Canada issued its first rate announcement of 2024, opting to leave rates unchanged for the fourth time in a row. In the wake of the decision, pundits (including myself) have been dissecting Governor Tiff Macklem’s every word and speculating about rate policy going forward.
Will the first rate cut come in April? Or maybe in July? How will U.S. rate policy affect Canadian policy? What about quantitative tightening? What is quantitative tightening? How about the wars – do they affect rates?
The truth is no one knows the future of interest rates – even Mr. Macklem is uncertain about the possibility and timing of rate cuts. For first-time home buyers navigating the uncertainty, it’s crucial to acknowledge that a crystal ball for mortgage rates doesn’t exist. And getting caught up in the hype and uncertainty surrounding the future of rates is dangerous.
To start, real estate transactions have never been more expensive. Whether you buy or sell a home, expect to pay a realtor’s commission of 5 per cent, lawyer’s fees, moving costs or even a penalty for breaking your existing mortgage early. You may need to buy furniture for the new home, or at the very least a coat of paint. All these expenses add up. Which is why you should only buy a home if you are planning on owning it for at least five years, but ideally 10 or more.
The Bank of Canada’s policies and current mortgage rates should have little influence on this long-term decision. So how can you evaluate the likelihood that you will be able to own a home for the long term? It comes down to a self-evaluation of your personal life and household finances.
There are, of course, no guarantees. But a stable personal life will increase the likelihood that you will live happily in your home for the long term. Questions you should ask yourself include:
- Are you buying on your own? If so, evaluate whether a current relationship might evolve into something more serious and wait to see if it does.
- Are you buying with a partner? Is the relationship stable and long-term? If not, it is a bad idea to buy with a partner.
- Are children on the horizon? What would your housing needs be with an expanding family?
When you buy your first home, aim for a reasonable degree of certainty regarding the people in your life and your housing needs; otherwise you will end up having to sell sooner than you had planned and perhaps in unfavourable market conditions, costing yourself tens or even hundreds of thousands of dollars.
Household finances and employment should also be on a sound footing when you jump into the housing market for the first time. Job instability is a leading cause of homeowners being forced to sell their properties early and incurring the expenses noted above. You should ask yourself:
- Are you confident that your job is secure? How about your partner – is their income reliable?
- Is there a chance you may want to switch careers or maybe move to another city?
- If you are self-employed, do you have a reasonable degree of certainty as to what your income will be in the years ahead?
- Do you have sufficient savings? After you make the down payment and pay for all the closing and moving costs, will you still have a financial cushion left?
If your career or income is uncertain, it’s best to avoid plunging into home ownership. With housing prices this high, being forced to sell could be disastrous for your personal finances.
Buying and selling real estate is costly, which is why it only makes sense as a long-term investment. The right time to buy your first home is when you are ready from a career and personal perspective, not when you think it’s an ideal time based on mortgage rates.
James Laird is the co-founder of Ratehub.ca and president of CanWise Financial mortgage lender.
