With a buyers’ market and lower interest rates, it’s a good time to be a buyer in Ottawa
If you live in the Ottawa area and you’ve been thinking of buying a house or condo, you’ve possibly already heard that it’s a good time to be a buyer, thanks to the buyers’ market we’ve been experiencing for several months.
The Ottawa market in the spring and summer of 2015 has seen an unusually large number of properties for sale and competing for buyers.
If you are shopping for a home or thinking of buying one soon, whether it’s a traditional detached house or a condominium unit, you have a lot of properties to choose from. It also means you are in a better negotiating position than you would be in a sellers’ market, when buyers outnumber the units for sale.
As I’ve been explaining to my seller clients, the current market means sellers need to price their properties realistically, in line with what similar properties have sold for in recent months. If you are selling, it also means you should ensure that your property is in immaculate condition, because your home is competing with many others.
If you’re a buyer, the current market puts you in a good position when you’re making an offer. In general, you have less likelihood of encountering fierce competition with other buyers or a bidding frenzy when you make an offer.
So that’s one element of the good news for Ottawa buyers these days.
In other positive news, the Bank of Canada recently cut its key interest rate by a quarter of a percentage point. As of this writing in late July, the Bank of Canada rate is at 0.5 per cent.
This is the second time the rate has been reduced in 2015. Last January, the Bank of Canada reduced the rate by the same amount.
The big banks have not lowered their prime rates by the same amount. But with each reduction, the major banks did lower their prime rates by .15 points. The current bank prime rate is 2.70 per cent.
Mortgage rates in Canada have been at historically low levels for many years now, so nobody expects the latest slight cut to prompt a huge surge of new homebuyers. But if you’ve been considering buying, it’s still positive news.
George Hartsgrove, an Ottawa mortgage agent with Mortgage Alliance, says most analysts expect the rates to stay that way until early 2016. I refer many of my buyer clients to George, who works with multiple lenders, and can shop around for the best possible rates, saving you the work of having to compare rates yourself.
Available interest rates can change, and there are conditions to meet, but as of this writing, George says that a borrower who meets the right conditions could get a five-year fixed rate at just 2.64 per cent.
If you were to choose a variable rate mortgage, George says a buyer could get a five-year term at the prime rate minus 0.65 per cent.
As George points out, “the factors that determine variable mortgage rates are different than those that determine fixed mortgage rates. Variable mortgage rates are essentially determined by commercial banks’ prime rates, which are mainly influenced by the Bank of Canada’s key interest rate.”
This means that “an increase or decrease in the key interest rate almost automatically leads to an equivalent change in variable mortgage rates.”
George quotes Robert McLister of Canadian Mortgage Trends as saying that “economists believe there’s more than a 70 per cent chance of another rate cut in September and there’s a good chance that bond yields will also drop.”
George says that “since fixed mortgage rates follow bond rates, this could mean further reductions in already ridiculously low fixed mortgages.”
If you happen to be a real estate investor, George cautions that “just because rates are low doesn’t mean you should just borrow and invest in a real estate rental property (or other type of investment). This decision really needs to be part of an overall strategy and that strategy needs to consider the impact of rising rates. While we haven’t seen rates rise in five years,” George says, “we all know that eventually they will rise and when they do, people that are stretched or over-leveraged will start to feel the impact. That’s when a good bet turns into a bad investment.”
The same caution applies if you are buying your own residence. If your monthly payments based on the current low interest rates would still be a financial stretch for you, what would you do if you are facing higher interest rates and higher payments when it comes time to renew your mortgage? It’s good to keep that possibility in mind when considering the purchase price that would be comfortable for your budget. A financial adisor can help.
While George Hartsgrove and other mortgage experts do not expect the recent rate reduction to dramatically affect the buying market, George says the rate cut is still positive news for anyone who is planning to buy soon.
“You can use lower rates to pay down your mortgage faster, save in long-term interest costs, or reduce your monthly payments.”
If you’ve been thinking of entering the market and would like to get an idea of the Ottawa-area properties that are within your budget, I’d be happy to meet with you. You can contact me through my website, www.nancybenson.com, or through my office at 613-788-2556.
If you’re looking to buy and would like to more information on the different mortgages and rates available at the moment, you can reach George Hartsgrove at 613-748-3838, ext. 228 or www.mortgagealliance.com