The recent 0.25% rate cut announcement by the Bank of Canada has many Ontarians on the fence about entering the mortgage market now or waiting for better conditions. While the rate cut is a small but positive sign, it's clear that the cost of living in Ontario remains high. With mortgage rates still above 5%, deciding whether to buy now or wait requires careful consideration of several factors.

When It Makes Sense to Buy Now

1. Affordability: If you can comfortably afford the mortgage payments at current interest rates, it might be a good time to buy. Ensure that your other monthly payments (credit cards, insurance etc.) won't stretch your finances too thin.
2. Long-Term Plans: If you plan on staying in your home for an extended period, buying now could be advantageous. This long-term stability allows you to build equity over time, offsetting higher initial interest costs.
3. Savings Safety: Entering the housing market shouldn't deplete your entire savings. Ensure you have a financial reserve for emergencies and other unexpected needs.

When to Consider Waiting

1. Financial Preparation: If you need more time to save for a downpayment, build your savings, or prepare for maintenance costs, waiting might be the better option. Rushing into a purchase without financial readiness can lead to stress and potential financial issues.
   
   
2. Short-Term Stability: If you anticipate needing to move in the short term, waiting might be wise. Buying a home comes with significant transaction costs that may not be recouped if you sell again soon.
   
   
3. Lifestyle Flexibility: Not owning a home offers flexibility. If you enjoy traveling, want to avoid the responsibilities of maintenance, or find living with others more comfortable and cost-effective, renting might be a better fit for now.

Other Considerations

• Market Dynamics: As interest rates drop, more people might enter the housing market, increasing competition and potentially driving up prices. Even with the rate cut, builders face high expenses, so new housing starts may lag, exacerbating supply issues.
  
  
• Stress Test Qualifications: While the interest rate may have dropped, people may still not pass the ‘stress test’ required by federally regulated banks to qualify for a mortgage. The stress test aims to ensure that buyers can still afford their mortgage if interest rates rise.
  
  
• Population Growth: Canada, particularly Ontario, is expecting strong population growth through immigration, the highest in the G7 over the next five years. High immigration targets mean increased demand for housing, putting further pressure on supply and prices.
  
  
• Bank of Canada’s Strategy: The Bank of Canada has signaled a slow approach to reducing rates. This means that while rates may eventually come down, it will be a gradual process, and waiting for significantly lower rates could be a long game.

Conclusion

During this interest rate dilemma, there are strong arguments for buying now and waiting. If you can afford the current rates without draining your savings and plan to stay for a while, entering the market now allows you to start building equity and might secure a home before prices rise further due to increased competition and population growth. On the other hand, if you need more time to prepare financially, anticipate moving soon, or value the flexibility of renting, waiting could be the better option.

If you are waiting for the return of the sub-2% mortgage rate, this is extremely unlikely for the foreseeable future. Therefore, basing your decision on the hopes of such low interest rates may not be realistic.

Ultimately, the decision comes down to your personal financial situation and long-term plans. Evaluate your readiness and consider consulting with your Alterna financial advisor to make the best choice for your circumstances.