There’s no doubt that 2020 has been a challenging year for many Canadians. While health and safety parameters such as social distancing have affected the economy, real estate has continued to operate as an essential service, and appears to have weathered the storm – at least for now.
Depending on your financial situation and the government’s interventions to bolster the economy, first-time homebuyers may be encouraged to set their sights on ownership. While there was a dip in activity at the outset of the economic shot-down, with fewer home sale transactions in March across major Canadian cities, the market bounced back much faster than anticipated and there are opportunities to explore.
In response to the pandemic and even prior to it, real estate agents had been leveraging technology such as 360 or 3D virtual tours, e-signatures and remote closings to facilitate transactions. Under the right circumstances, first-time homebuyer hoping to make a home purchase may find this is a good time to dip their toes into the market.
Here are a few ways that first-time buyers may benefit from purchasing a home now:
Bank of Canada Slashes Interest Rate
The Bank of Canada has made several interest rate changes over the past few months in response to the coronavirus outbreak. The government made the decision with the purpose of softening the blow of the pandemic to the economy. Real estate is one of Canada’s largest economic sectors, and this lowered interest rate indeed encouraged more Canadians to purchase a home.
In March, The Bank of Canada had slashed the rate from 1.75% to 1.25% which had ignited activity in home purchases especially in more expensive markets. Since then they have made even more reductions. Currently, the benchmark rate sits at 0.25%, the lowest it’s ever been. This is good news for first-time homebuyers who have struggled in the past to qualify for a mortgage due to the mortgage stress test and higher interest rates. Now, first-time buyers can borrow the funds they needed from mortgage lenders, and pay less in interest over time.
Experts have predicted that the Bank of Canada interest rate should hold steady this year, which buys first-timers some time to shop the market.
Other government incentives such as the First Time Home Buyer Incentive and the first-time Home Buyers’ Plan will help first timers take the leap into home ownership and potentially get more of the home features that they desire, such as more square footage or their desired location.
Beat Out the Market Competition
While Covid-19 put a definite drag on real estate market activity, albeit temporarily, consider that market slow-downs like this can benefit first-time homebuyers hoping to put an offer on their dream home. During this pandemic, buyers still had the option of connecting with their realtor digitally and pushing forward with virtual deals. Those who were willing to adapt and use technology have continued to transact. Although it seemed like a strange time to consider purchasing a home, under the right circumstances (i.e. financial/job stability) for many it was a smart financial decision.
Generally, in uncertain times and circumstances, many people will take a wait-and-see approach to the real estate market, since this is a large investment and long-term commitment. However, homebuyers willing to brave the conditions could be at an advantage. This is because fewer buyers shopping for homes means less competition. Sellers who are keen to sell quickly may be more open to negotiating and lowering their price. When this happens on a larger scale, the effect will be a shift from a sellers’ market to a buyer’s market.
Economic Downturn? No Problem
If you’ve already saved a down payment in cash and is not tied up in other investments, you may not be affected by an economic downturn. If you have job security in your current role and have access to the financing you need, market conditions could be right to make a purchase.
Being a first-time homebuyer now means you can take advantage of low interest rates and less competition in some markets. In contrast, other homebuyers may be wondering if they will be able to sell their current home in this market and use the equity to purchase a new home.
Prior to the pandemic, market activity was red-hot in many of Canada’s housing markets, such as Toronto and Vancouver. Home sales quickly picked up right where they left off and the summer experienced a delayed spring market, meaning those purchasing a home shouldn’t be too concerned with selling en existing property to finance a new one. Housing inventory across much of Canada is down, which means properties listed on the MLS won’t be up for grabs for long.
These challenging times do not mean that it is necessarily a bad time to buy a home. Those who are willing to brave current market conditions can find plenty of opportunities to get ahead of the market and find savings. As social distancing measures continue to loosen, the demand and activity has returned to the market.