Mortgage Basics #Featured articles
Mortgage Basics #Featured articles
The Hidden Upside in a Market Downturn
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How do you navigate the hidden upside during a Canadian housing downturn? Home prices are softening in many regions, listings are rising, and buyers are finally seeing some much-needed breathing room. But housing downturns rarely last forever in Canada, and for homebuyers who act strategically, they can be one of the best entry points.
First-time buyers are finding that doors that were previously firmly shut during the pandemic frenzy are now opening. Upsizers are discovering that the gap between what they sell and what they buy has narrowed. Investors see a chance to pick up value before demand swings back. Most importantly, mortgage rates are already shifting lower as the Bank of Canada cuts its policy rate, while bond yields have already drifted lower. A situation that signals today’s leverage could be short-lived.
Key Highlights
- Bank of Canada rate cuts and falling bond yields are laying the groundwork for cheaper mortgages.
- Buyers currently have more inventory and stronger negotiating power, but this window will close once demand rebounds.
- Acting early with a mortgage pre-approval and a clear strategy helps secure value before sellers regain the upper hand.
What a Housing Downturn Really Means
A downturn is not a collapse, but rather the housing market recalibrating homeowner equity. Home prices ease when the housing supply outpaces home sales, and financing costs keep buyers cautiously on the sidelines. National averages don’t tell the whole story, as regional variations and employment trends result in an uneven downturn across the country. Some markets are clearly tilting in favour of buyers, while others remain balanced.
History shows that these conditions are temporary. Once borrowing costs fall far enough, sidelined buyers rush back in, draining inventory and firming up prices. That’s why savvy buyers treat downturns as windows, not as long-term realities.
Opportunities for First-Time Homebuyers
For those entering the market, the shift is meaningful. Lower prices, less competition, and more negotiating room mean buyers can add back conditions like financing and inspections. Sellers are more open to flexible timelines, which reduces stress for new homeowners.
The challenge in qualifying continues to be the mortgage stress test, which requires new home purchases to qualify on your rate plus 2% or 5.25% whichever is higher, as “what-if” monthly payments. That makes a mortgage pre-approval essential. A rate hold protects you if lenders reduce variable-rate discounts further, while also ensuring you’re not caught off guard if bond yields jump, taking fixed rates higher.
Why Investors Look at Downturns Differently
Real estate investors often move into the market when others are hesitant. More listings, motivated sellers, and weaker pre-construction demand can uncover distressed or underpriced opportunities. Rental demand hasn’t disappeared, as population growth keeps the long-term fundamentals intact.
As mortgage broker David Larock has noted, “variable mortgage rates will likely produce the lowest borrowing cost over their full term,” with more Bank of Canada cuts expected. Investors who align with the easing cycle often see the most substantial returns when confidence returns.
Upsizing and Relocating When Markets Lull
For families moving up, downturns are strategic. Even if your current home sells for less than its peak, the larger home you’re buying may have fallen further. The dollar gap you need to finance shrinks. Combine that with fewer bidding wars, and the trade-up math suddenly works in your favour.
Those relocating also gain from abundant inventory. With more listings on the market, you can compare neighbourhoods, weigh schools and transit choices, and negotiate terms without the frenzy of peak markets.
Mortgage Strategy in a Shifting Market
The Bank of Canada has already cut its policy rate, and history shows it rarely stops until it’s closer to 2%. Each move lowers variable rates immediately, while fixed rates follow bond yields; a conjecture highlighting the value of urgency.
However, bond yields often adjust before the central bank takes action. Markets anticipate cuts, and lenders reprice quickly. That’s why waiting for the “next cut” can backfire; by the time it arrives, the best rates may already be gone as lender increase their premiums.
How to Play It Smart in a Downturn
- Secure a pre-approval: Lock in today’s rates and protect against sudden moves in bond markets.
- Compare fixed and variable rates in context: Fixed rates are currently near long-term averages, while variable rates may come out ahead if interest rate cuts continue.
- Look beyond the sticker rate: Flexibility, penalties, and lender terms and conditions matter just as much when markets shift.
Regional Differences Offer an Opportunity
Ontario and BC continue to show clear buyer’s market conditions, with listings outpacing sales. In contrast, Quebec, the Prairies, and much of Atlantic Canada remain more stable, with home prices holding steadier.
Homebuyers should monitor key metrics, such as the sales-to-new-listings ratio (SNLR) and months of inventory, as these regional differences are significant. When those tip toward the buyer’s side, opportunities emerge. The leverage returns to sellers once these supply-side benefits shift back to normal.
Long-Term Planning Over Short-Term Fear
The real upside in downturns isn’t about calling the bottom. It’s about buying on your own terms. A home should align with your financial plan, income, and risk tolerance. With the right mortgage strategy suited to your unique circumstances, downturn purchases become long-term wins.
History also shows that by the time confidence returns, bargains are gone. As John Pasalis at Realosophy stated, “Lower rates combined with softer prices in some segments might encourage more buyers to step in.” Waiting often means paying more.
Frequently Asked Questions (FAQ) About Benefiting From a Canadian Housing Market Downturn
Is a downturn really a good time to buy a home?
A housing downturn can be an ideal time to buy, as buyers have more negotiating power when inventory is high and borrowing costs are starting to ease. The key is making a move before demand rebounds and competition pushes prices back up.
Do lower policy rates automatically make homes affordable?
Lower policy rates don’t automatically make homes affordable. They reduce borrowing costs, but affordability also depends on factors such as household income, property prices, municipal taxes, and condo maintenance fees. While the mortgage stress test rules limit overleveraging. Acting early allows buyers to capture the most benefit from lower rates before the market adjusts.
Is fixed or variable the better mortgage type in today’s market?
Both fixed and variable mortgages can be suitable options right now. Fixed rates are currently near long-term averages, providing stability, while variable rates could offer more savings over time if the Bank of Canada continues to cut interest rates. The better choice depends on how comfortable a borrower is with short-term payment changes and whether they have the equity to withstand market fluctuations.
Should I wait for home prices to fall further?
Waiting for prices to drop further can be a risky strategy. Some regions may experience slight declines, but falling rates often improve affordability more quickly than prices may fall. Deciding sooner helps buyers protect their leverage before mortgage costs climb again.
What signals indicate that the window for lower home prices is closing
The window for buyers starts to close when bond yields fall, causing fixed mortgage rates to drop, and when the sales-to-new-listings ratio (SLNR) begins to tighten. These market shifts typically trigger increased demand, which means buyers who hesitate risk losing their negotiating power.
Final Thoughts
Currently, the Canadian housing market presents a rare alignment: lower prices, increased inventory, and declining borrowing costs. But this combination won’t last. Bond markets are already shifting, and every Bank of Canada cut narrows the buyer’s window.
The best move is to act while conditions still tilt in your favour. Reach out to a nesto mortgage expert to help you compare fixed and variable options, find your best mortgage rate in Canada, and set up a mortgage strategy that fits your long-term goals before the market swings back.
Why Choose nesto
At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned, salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.
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