Rumour has it that there will be a real estate market crash here in Oxford County in 2024, because homes purchased in 2019 with five-year mortgages will be coming due. Is this likely?
Let’s look at the numbers.
The average five-year mortgage interest rate in 2019 was 5.34%; the average home in Oxford County was $394,000.
While we don’t know what the average mortgage rate will be in the spring of 2024, currently it is 6.94% – only 1.5% higher than the average in 2019.
The current average home price in Oxford County is $631,000. That’s 160% of what the average home value was five years ago!
During the last five years, most people have seen a huge increase in their home’s equity by both paying down their mortgages and enjoying the rise in average home prices. The increase in mortgage interest rate will be negligible, and for most people, their monthly payment will stay the same.
The people that are hurt by the rise in interest rates are those that re-financed during COVID and pulled out all their equity at a time of inflated home values. Most of those were only locked into one- or two-year terms. (The low rates were intended to keep the economy going during a global pandemic – the housing frenzy was a by-product.) Most of those mortgages have already come due without a flood of homes hitting the market. In fact, we see fewer and fewer foreclosures each year. The Canadian mortgage system has too many checks and balances to allow for a crash similar to the US crash of 2007/08.
How affordable are mortgage payments post pandemic?
The reality is that homes are just as affordable as they were during the pandemic. Think about it.
At the height of the frenzy, the average home price was $815,500 in Oxford County (almost $200,000 more than today). A minimum downpayment would’ve been $40,775. Even at that time, while a one-year mortgage was 2.79%, a five-year fixed was 4.79%! Even at the discounted rate of 2.79, the monthly payment was $3,590, and if you weren’t a gambler and locked it in, your payment would be $4,435. Apply today’s numbers: average home $631,000, downpayment becomes $31,550, and you get a five-year mortgage payment of $4,044!
My conclusion: Rumours of a real estate market crash should be taken with a large grain of salt. A crash is unlikely because home price drops have balanced out any increase in mortgage rates, and monthly payments have adjusted accordingly. If you’re waiting for a magic time to buy, please think again. Now is as good a time to purchase a house as it was at peak-pandemic.
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