The mortgage rates have jumped up over the past month by more than ½%. How is this change affecting the market?
The easy way to look at it is to see how much the costs of carrying a mortgage have increased. Another approach when you lean into the question a bit deeper that might surprise you is that rising rates may have positive and unintended side effects.

Looking at the price of semi-detached homes in Oshawa and with rates for a 5-year fixed term in the 4.19% range, there is no question that a 1% rate hike will affect carrying costs. Shocking, until you look back to see it was not that long ago that rates were upwards of 10% or even higher. At 4.19% the rates are still, historically seen as rock bottom. The average semi-detached home in Oshawa, with a 20% down payment and a 4.19% mortgage rate comes in just under $3,400/month to carry. This is up about $400/month from rates recently at 3%.

Before we get too riled up, let’s look at the effects that increasing rates have on the resale value.

In February/22 the average semi-detached home in Oshawa sold for $958,000. With rates rising and cooling in the marketplace, the average at the end of March/22 fell to $853,000! This month, with ½% mortgage rate increases the values have continued to slide. As of April 18^th, that average semi is selling for $780,000!
This is a decrease of over $170,000 in just over 2 months. Looking at a semi-detached home costing $400/month more to service (based on Feb/22 prices) and from the perspective of a 5-year lending cycle, it would cost $24,000 more to pay for the mortgage. However, a Buyer today is paying $170,000 less for the home. Clearly, unless I am missing something, with the rates increasing and the values becoming more reasonable, now is an amazing time to buy a home. What it does require are higher monthly carrying costs and stronger incomes to meet the lending criteria.

For context, a home valued at $958,000 and a Buyer with a 20% downpayment the monthly payment at a 3% mortgage rate would be just under $3,626, whereas a Buyer at today’s reduced values and increased mortgage rates would be paying $3,300. The Buyer purchases a home for $170,000 less and their payments drop by $300. This is an opportunists way of looking at the current market.

One definite downside is that the Buyer needs to meet the “stress test” which means that they must qualify for the mortgage on the Bank of Canada Prime which now sits at over 5%, again with the values decreasing, the Buyer is qualifying on a lower amount, so they still come out ahead.

Having sold Real Estate for over 37 years locally I have experienced two market experiences in the past few years that might give some insight into what direction the market is about to head. Firstly, in the spring of 2017, we saw a steep reduction of values over a 4 month period. Oshawa, Whitby and Clarington individually saw detached homes drop over $100,000. Once the drop ceased, the value stayed static for a few months only to start to increase becoming a booming market. The second memory was in March 2020. Once the Pandemic closed businesses the values slipped. Oshawa homes dropped about $58,000 in 2 months, however, as we saw in 2017 the values rebounded to prices where all three of our communities are over $1,000,000 for the average home.

This is a great opportunity time to buy, and if you are selling the values are still some of the highest we have ever seen. If you are planning on buying, do it soon as the rates are set to continue to increase as we moved through 2022. For Sellers, if you are planning a move, time as we have seen over the past 60 days is not your friend. Best to get the sold sign up soon. We only know where we are today.

If you have any questions about mortgages, buying or selling I can be reached at lindsay@buyselllove.ca or 905-742-5555.

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