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Fear of “Missing the Boat”

Homeownership-concernsA few months back, RBC/Ipsos polled people who were likely to purchase a home within the next two years.

These folks were asked: “Which of the following concerns you the most about purchasing a home?”

People’s top worries were:

“Home prices increasing” – 23%

“Mortgage rates increasing” – 22%

“Your current debt level” – 20%

“Qualifying for a mortgage” – 19%

“Having a good down payment” – 16%

Climbing home prices and rising mortgage rates were the top two concerns cited last year as well. Some people have a genuine anxiety over missing the boat on rates and future price gains.


For what it’s worth, CREA forecasts home prices will drop 1.1% this year. CMHC sees just a 1.6% gain.

Either way, price growth will not exceed long-term averages (like it has been) indefinitely. As a result, fear of higher home prices is not a sound reason to rush into the market.

Rate-vs-PriceAs for the threat of rate increases, future rates are anyone’s guess. If you put faith in the Big 6 banks, their consensus predicts that:

  • The overnight rate (which leads prime rate) will remain unchanged until 2013.
  • 5-year yields (which influence 5-year fixed rates) will rise just 34 basis points by year end, to 1.93%. This implies a still-low 3.53% five-year fixed rate on Dec. 31, 2012—assuming spreads stay the same as today.

Even if rates rise more than that this year, one could argue that doing so might have a negative effect on mortgage affordability, and thus home prices.

Whatever the case, there’s little benefit in rushing a home purchase in order to lock in a “good rate.” Most people are better off taking their chances with rates (or getting one or more six-month rate holds) and then:

a) Finding a better-value home, and/or

b) Building a bigger downpayment, and/or

c) Building a liquid 6-month emergency fund (if they don’t have one), and/or

d) Improving their income reliability or cash flow.

A great rate and short-term price appreciation mean nothing if buying a home puts you at risk of negative equity, illiquidity, a loss of net worth or insolvency.

Survey Info: The above results are from a sub-sample of 532 people that Ipsos Reid polled from across the country in January. Source: RBC 19th Annual Homeownership Poll.

Rob McLister, CMT