Should I buy real estate during the COVID-19 pandemic?

Team Vancity May 21, 2020

You’ll want to consider these factors before making any moves, especially if you’re a first-time homebuyer.

If you’re thinking about buying a house now, you’re probably asking yourself: should I buy now, or will prices drop? Are the low-interest rates we’re seeing likely to continue? How is my house-buying budget affected by all of these changes? Can I afford less, the same, or more?

The process of buying a house in Canada has always been an exercise in balancing your personal situation with the broader economy and the overall housing market. COVID-19 hasn’t changed this equation. All three factors can impact the feasibility of a home purchase, but only one – your personal situation – is within your control.

Let’s look at each factor in turn and answer your questions.

When interest rates are down, the cost of borrowing – including for a house – falls.

First things first: When rates are low (as they are now), your monthly mortgage payments are smaller than when rates are higher.

Although the Bank of Canada doesn’t set mortgage rates, they do set interest-rate targets that, in turn, influence mortgage rates.

In their April 2020 Monetary Policy Report, the Bank says interest rates, already at historic lows, are as low as they are likely to go – and that to support Canada’s economic recovery, they’ll remain low over the next 18 months to two years.

Are the low-interest rates we’re seeing likely to continue? Most likely, yes. What this means is that if you’re thinking about buying a house in the coming months, it’s unlikely to expect rising rate costs.

Planning to buy now? If you are, then you should consider locking in a mortgage rate for as long as your lender will consider, as rates will likely only go up from here.

The overall impacts of COVID-19 on the housing market aren’t clear yet.

So far, it’s hard to get a clear line of sight into how the pandemic might affect housing prices. That’s largely due to the fact that the number of houses being bought and sold is way down since the pandemic started.

For example, the current data coming out of the Greater Vancouver Real Estate Board shows that the volume of housing sales is the lowest it’s been since April 1982, or nearly forty years.

Because so few houses are changing hands, both buyers and sellers are challenged to predict whether housing prices will stay the same, fall, or increase – and location and type of housing (condo, semi-detached, detached) will further impact prices. (That is, prices in certain segments may fall, while they rise or stay flat in others.)

However, Canadian standards for mortgage lending are strong, as lenders carefully assess the risk before they loan funds, and only loan to buyers who are in good financial shape. The Government of Canada has also stepped in with income support that’s helping households meet their bills.

Taken together, these factors – along with the Government’s active role in providing economic stability – mean it’s doubtful that housing prices will fall to “fire sale” territory, even if the economic uncertainty associated with the COVID-19 pandemic persists for a long time.

Should I wait for the market to fall and then buy? As a result of the strong lending standards in place in Canada, our view is that prices will remain stable over the foreseeable future, without big or persistent changes upwards or downwards.

Can I afford less, the same, or more? The costs to buy a house are made up of two main factors: the house price, and the interest rate on the funds you borrow to make the purchase. If housing prices remain stable – which is our prediction – then lower interest rates will make the same house more affordable than it would be when rates are higher – but you’ll still need a down payment and the income to support the mortgage you need.

Above all, your personal situation is key to your house-buying decision.

Looking beyond housing prices and interest rates, your personal situation is the key factor in determining whether it’s a good time for you to buy a house – whether you’re a first-time buyer, or you’re looking to upsize or downsize your dwelling.

Are you a first-time homebuyer? If so, you’ll want to focus on your savings, budget, and job security.

Go over your savings and budget. Do you have enough money set aside for a downpayment? The more you can afford to pay upfront directly affects the cost of your mortgage.

Keep in mind that a mortgage approval outlines the maximum you qualify to borrow, but isn’t intended as a spending guideline. You should only borrow what you need and can afford per your personal situation.

It’s not just the home and financing you need to budget for, there are also some immediate transaction costs such as the provincial property transfer tax and legal services that you’ll need to consider.

And once the home is purchased, you’ll have other expenses you’ll need to cover e.g. annual property taxes, utility payments, maintenance, insurance, etc. If you’re concerned you don’t have it all figured out or accounted for, a Vancity advisor can help you develop a realistic budget.

Review your job security and ability to withstand uncertainty. Are you worried about whether your household income is secure over the coming months?

If you hold off on buying, and your chosen housing type rises in price, will you still be able to afford the higher price?

Although rate increases in the near term are unlikely, have you “stress-tested” your budget to check the impact of any increase in interest rates or unexpected bills?

Hoping to upsize or downsize your home? Here’s what’s on your plate.

You’ll need to deal with two transactions, not just one – and maybe two housing markets, too.

If this isn’t your first home, your situation is more complex as you’re selling your existing home, and then buying a new one.

As a homeowner, the down payment for your next home is likely available from the equity in your existing home.

Although you may not need a mortgage to upsize or downsize, the numbers still need to work.

Even though you’re not a first-time homebuyer, and you may not need a mortgage, you’ll still need to pay attention to your savings and budget to ensure you make decisions that work for your household over the long term.

Keep in mind that with two transactions, you’ll also face two sets of transaction costs. These can include the real estate commission on the sale, the provincial property transfer tax, and legal costs.

Take your time to make sure you’re informed and in control

The reality is that home-buying decisions, even in non-pandemic times, are usually very complex – and most of us don’t get a lot of practice at making them, as we only buy or sell a few houses over our lifetime.

All of these uncertainties mean that it is very difficult, and perhaps even impossible, to provide a blanket statement confirming whether this is a good or a bad time to buy a house. Instead, the focus should be on whether it’s a good time or a bad time for you, given your personal situation.

If you’re unsure if now is a good time for you to buy or sell a home, Vancity can help. We won’t give you a yes or no answer, but instead, our experts will work with you to develop a personalized budget and plan. If your overall financial picture suggests that you’re ready to buy or sell a home – or both – we can help you navigate the process with you. To start the conversation, reach out and set up an online appointment.

This article is part of a Vancity series to help breakdown and explain COVID-19 economic stimulus measures and other forms of financial assistance for individuals and families, businesses, and investors – so they can endure and thrive during these difficult times.

This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionals regarding your particular circumstances. Please see our Terms of Use.

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