Rising rates boost savvy savers
There's little doubt interest rates will be heading higher and with that, a lot of chatter around a day of reckoning for so many who have been living close to the margin.
The debt levels of Canadians continue to soar and concern over servicing that debt in a higher interest rate environment has alarm bells ringing. Additionally, stories have been abundant on a blistering hot housing market with prices skyrocketing, pent up demand, and not enough supply.
To be fair, potential homeowners had to qualify for a fixed-rate mortgage despite opting for a variable rate mortgage providing households with little financial wiggle room and helping to increase housing affordability. However, that may change with some homeowners finding themselves stretched beyond their financial comfort zone as they look to lock in at higher rates.
Being house poor isn't fun and an affordability crunch could lie ahead.
And while some may find owning a home a struggle, that isn't the case for all.
This "K" shaped recovery has divided Canadians into savers and spenders. Throughout the pandemic, those who managed to work while saving costs associated with working from home and simply forced saving due to pandemic closures and lockdowns have resulted in a swelling of bank accounts.
Many have become savvy savers.
Quietly lingering in the background throughout the pandemic is a cohort not often heard from - the aggressive savers. They are the ones not buying into the hype that housing prices will continue to march higher, the ones who seriously look at a return on their investment and have questioned the ludicrous rise in housing prices suspecting it wasn't sustainable. More importantly, they are the ones who can afford to buy, but have chosen not to.
Herein lies the golden opportunity for those sitting on the sidelines patiently waiting to become homeowners.
As rates head higher, qualifying for a mortgage becomes more challenging. That clearly results in fewer buyers, and yet before the real estate party is over some will want to sell to cash in.
The result? Fewer buyers and increased inventory equals lower prices. It's the market moment some have been waiting for.
My son, who owns a condo and wants to buy a new home, shared some of his thoughts about the housing market: "It has been frustrating over the past year where supply has been low and demand has been through the roof. Anything that could slow this market down could be impactful for those who are prepared to buy. We are looking to keep our debt load manageable but would like to enter the market sooner than later.
Now to be fair, the transition won't happen overnight. Location still matters and affordability is key. However, I'm in the camp a shift in the real estate market isn't that far off.
Potential buyers: if you haven't already prequalified, there is no harm in doing so just in case an opportunity presents itself.