Real Estate Talk: Spring
market and pre-approvals

Buyers must acquire a mortgage pre-approval at the current best rate possible

By Joseph Marovitch

March 16, 2023

In the Financial Post article on March 15, 2023, regarding Canada’s rise in home sales, there is optimism for the upcoming market provided by the Canadian Real Estate Association (CREA). The article indicates there may be a turnaround in the real estate market.

This may be true under the following conditions. First, the inflation rate must decrease to 3% or less before the end of the year. Second, with the lower inflation rate, the bank of Canada’s interest rate must reduce as well. Under these two conditions, the Bank of Canada will not introduce additional interest rate hikes, which will further serve to drive real estate values down.

If these two issues do not take place, then there is something everyone who is buying must do now. Buyers must acquire a mortgage pre-approval at the current best rate possible. Then, in the event the inflation rate does not decrease to 3% or less when the Fed increases the interest rate again, buyers with pre-approvals will save considerable amounts of money on their mortgage.

A pre-approval permits a buyer to lock in an interest rate for up to three months. It also informs the buyer how much the bank is prepared to lend the buyer. Another advantage a pre-approval offers is sellers are more flexible with pre-approved buyers who have funds ready than buyers not vetted for their finances. The pre-approval reduces the risk that the sale will not come to fruition.

In the event the inflation rate does not decrease to 3% or less when the Fed increases the interest rate again, buyers with pre-approvals will save considerable amounts of money on their mortgage.

To acquire pre-approval a buyer can approach their bank or a mortgage broker. The buyer will be requested to provide their last year-end assessment, one or two pay stubs and proof that they have funds for a down payment.

If the market is in a turnaround, as the article in the Financial Post suggests, sellers will see the price of their homes rise. However, if inflation does not decrease to 3% or less and rates rise in the new year, sellers may be inclined to price their homes properly at market value and sell now or hold for the next year or two and wait to see if the inflation and rates decrease.

Sellers know what they can sell their homes for in the present. There is no telling what will happen in the future. We live in uncertain times. The geopolitical world is unstable. Russia, China, North Korea and Iran are at odds with the U.S., United Kingdom and Canada. With Russia pounding Ukraine, we have never been so close to a world war since 1945.

If Russia wins in Ukraine and then confronts NATO countries such as Latvia, Lithuania, Moldova or Poland, we will be in a dangerous situation. The U.S. government and its people are divided on providing support to Ukraine. As the presidential election approaches, some candidates will continue to support Ukraine and others will reduce or stop their support of the country.

‘Sellers know what they can sell their homes for in the present. There is no telling what will happen in the future. We live in uncertain times. The geopolitical world in unstable.’

The immediate effects will be a slowing down of the supply chain for goods, services, food and water, causing rising prices. This will, in turn, increase interest rates as demand rises, which will then decrease property values. The long-term effects are too awful to contemplate but thought must be given. On the other hand, if Russia and Ukraine come to a peaceful conclusion and citizens of the world find common ground and can disagree but still get along, then everything may be alright.

The bottom line, in my opinion, is buyers get a pre-approval now, and selling now is less risky than holding for a better investment return, though risk, if overcome, can always lead to larger gains.

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State of the market

CPI today (inflation rate) 5.9%
Bank of Canada Interest Rate 4.5%

According to CREA, the Canadian Real Estate Association, Canadian housing starts increased by 2.3%, but sales in February 2023 were down 40% in Canada from the previous year. This would be due to rate increases. There is optimism in the air since the Fed stated there would be no interest rate hikes for the rest of 2023. This gives sellers nine months to take advantage of today’s property values if interest rates rise in 2023. It is a poker game of sell/buy or hold since inflation could decrease, causing mortgage rates to drop and property value to rise, or vice versa.

‘According to CREA, the Canadian Real Estate Association, Canadian housing starts increased by 2.3%, however, sales across Canada in February 2023 decreased by 40% from the previous year.’

Buyers can benefit from today’s rates with a pre-approval and purchase now, or wait to see what the market bears in the new year.

Have a great week.

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