Is Now the Right Time to Buy a House in Edmonton? [October 2022]
According to recent housing reports, the average home prices in Edmonton have increased over last year, and the demand for inventory is up. So does this mean now is the right time to buy a new home? It’s a question many potential home buyers are asking. But the answer to that question depends on a variety of factors, including your current financial situation and the state of the housing market.
In this article, we’ll take a closer look at both of those, plus some other factors, to help you decide whether or not now is a good time to buy a house in Edmonton.
Want a quick recap of this article? Check out the video below to see the highlights!
Should I Buy a House Now?
Although the economy is a bit uncertain right now there are still a few reasons why now could be good time to buy a house. While interest rates are currently higher than they have been in the past few years, when you compare them to the trend over a longer period of time you can see that we’re still on the lower end of the scale, and you should consider the possibility of house prices rising in the future—especially once the economy begins turning around.
In addition to what we mentioned above, there are also immigration levels, the unemployment rate, supply and demand – all of these are factors that home buyers have questions about.
Edmonton is a rapidly growing city with a flourishing housing market. If you’ve been thinking about buying new, now could be the perfect time to buy the home of your dreams.
Examine Local Market Conditions Carefully
One important thing to consider is the state of the housing market. In general, prices have been dropping and inventory is up. This means there are more homes on the market and buyers have more negotiating power.
However, this doesn’t mean that every home is a bargain. In fact, some homes may have higher prices than what’s in the market. That’s why it’s important to do your research. If needed, you can work with a real estate agent who can help you find a good deal.
Something to keep in mind: Edmonton has one of the most stable house prices in Canada, which bodes well for current market conditions and the future.
Housing Supply and Demand
Another important factor to consider is the current supply of homes. In general, if there are more buyers than there are houses on the market, prices go up. This is called a buyer’s market. It means would-be buyers have more negotiating power and they can get a good deal on a home.
On the other hand, if there are more houses than there are buyers, prices generally go down because there is more inventory than what’s needed for the market. And yes, this is called a seller’s market. This means existing homeowners currently selling their house usually get a higher price.
Some questions to ask would be:
- What are the current market conditions in Edmonton?
- How is today’s market changing?
- Are there more buyers or sellers in the market right now?
- Why are people buying or selling houses?
- What do home sales look like over the past month/quarter/year?
- What’s been happening with home prices? Are homes selling for more or less than asking?
It’s extremely important to know what’s happening in real estate when it comes to home buying. Understanding home values will help ensure you are paying a good price for your new home. A good person to talk to would be a real estate agent or a sales rep for a home builder. They have great insight into what home buyers should take note of.
The housing inventory shortage is particularly striking in Alberta given the province’s size. A Scotiabank report says Alberta would require more than 138,000 units to meet the national average of homes per capita.
Despite recent increases in builder permits, the shortage of housing relative to the population’s needs will continue to put upward pressure on prices and rents and reduce affordability. The housing supply growth rate just hasn’t kept up with population growth rates.
Interest and Mortgage Rates
You can’t talk about buying a home and not discuss how the current interest rates and mortgage rules play into the decision.
As of October 2022, the Bank of Canada has continued to increase policy interest rates, and the prime rate is 5.45%. While this number isn’t overly high, it is the highest rate it’s been since before the pandemic.
The chart below shows the Canadian prime rate from January 1975 to October 2022. As you can see, our current prime rate (although not at the same historic lows we’ve seen before) is still well below historical averages, and within the normal range for the last 15 years.
If you’re curious, the highest point is September 1981, with a prime rate of 22.75%!
The prime rate affects all types of financing, including mortgages. So while 5.45% seems high in comparison to the last few years, as mentioned it’s within just a few percentage points of this century.
And it looks like rising rates are going to be the trend for the next few years. Mortgage rates will continue to rise, although most likely at a slower pace. Over the past year, the prime interest rate has gone from 2.70% (March 2022) to 5.45% (October 2022). This means the earlier you get into the market, the less money you pay for interest costs which is always better for you.
Buying a Home Now Versus Later
Let’s take a look at how buying now versus buying later will play out when you take into account higher mortgage rates:
The Stress Test
One key factor in a mortgage is the stress test. Canada introduced a stress test to help reduce the impacts of increased interest rates and to combat potential crashes in real estate. This stress test helps prevent a housing bubble and defaults on mortgages by homeowners. Therefore, the real estate market will likely correct itself, but will never crash.
The graph below illustrates the rate of foreclosures relative to the number of mortgages and shows how well the stress test has performed in reducing the number of foreclosures we see in Canada. The correction (or “dip”) is where the best deals are and the best time to purchase your home under market value.
The stress test is specific to mortgage rates. Now, it used to only apply to a high-ratio mortgage (a mortgage with a down payment of less than 20%) but it’s since been adjusted to apply to all mortgages. When you apply for a mortgage, you’re offered a specific rate. But your bank needs to check if you’ll be able to make those mortgage payments, especially if your rate rises during your term.
Basically, you need to qualify for a mortgage at a higher rate than the one your lender gave you. The Office of the Superintendent of Financial Institutions (OSFI), a federal government agency, decided to modify the stress test in 2021. The minimum qualifying rate was changed to a set amount that will be reviewed annually. Currently, that rate is 5.25%. You want to make sure you’re able to pass the stress test, otherwise, you won’t be approved for your mortgage.
Immigration Levels and Population Growth
You also need to consider the growth rates in the area. If the area is growing rapidly, that could mean that prices will continue to rise in the future.
Immigrant populations are a good indicator of future housing prices. If there is a lot of immigration to an area, that generally means that demand for housing is high and prices will continue to rise.
Currently, immigration levels are at record levels and will continue to be at record levels until at least 2024. Under its Immigration Levels Plan, Canada is now looking to welcome over 430,000 new immigrants each year, which is the highest level in its history. Canada’s immigration goals are to strengthen the economy, reunite families, and help refugees.
Did you know that immigration levels are at record levels in Canada? As mentioned, the plan is to welcome over 430,00 new immigrants from 2022 to 2024, which rivals levels seen in the early 1900s. This bodes well for buyers entering the real estate market now, as real estate demand will be very likely to exceed real estate supply.
When talking about Alberta specifically, in the first quarter of 2022, net migration into Alberta was 16,510, compared to 2,919 in the same quarter of 2021. That’s an increase of 465.6%. And net inter-provincial migration into Alberta was 11,159 in the first quarter of 2022. Population growth – at 2.23% in Alberta – is among the top in Canada.
The Government of Alberta is predicting an average annual growth of 1.5% between 2022 and 2046. This means almost two million extra residents and a rise in population to around 6.4 million. Around 80% of people are expected to be living in the Edmonton-Calgary corridor by this time, meaning the larger urban areas are extremely well positioned for growth.
The National Average
This is quickly becoming a key factor when deciding if now is the right time to buy a house or not. Many people are trying to decide what major metropolitan area they want to live in. For example, Edmonton is a popular place for many immigrant families. The cost of living as compared to other major cities like Vancouver and Toronto is much lower, which makes Edmonton an attractive option. This means more families will move to the city and these prospective buyers will be looking to buy a house.
That means a seller’s market, which means more competition for you when finding your new house. The last thing you want is a bidding war and possibly losing out on your dream home.
As of September 2022, according to the Canadian Real Estate Association, the average home price in major Canadian cities is as follows:
|Canadian cities ranked from Highest to Lowest|
As you can see, Edmonton is one of the lowest costs for the average price of a home and it’s almost half of what the national average is. Edmonton home buyers are in a position to pay significantly less money than the majority of the rest of the country.
The Job Market
Alberta’s unemployment rate in April 2022 was the lowest it has been since 2015. Thousands of jobs are being created to help diversify our economy. Diversification is not just a buzzword, it’s happening faster than anyone expected.
As more jobs are being created, more people are moving into the city to fill them. The appeal of job security and advancement in their career can’t be denied. Everyone wants to have some job stability! People are moving from all over the country to come to Alberta, and they’re going to need somewhere to live.
Even if they decide to rent when they first move here, local real estate investors are snatching up new build homes, as they are a solid long-term investment in their portfolio. These investors can ask top dollar for rent since it’s a newer home and these homes are usually in desirable areas of the city. And that changes market conditions, increasing demand.
The Pros and Cons of Homeownership
The biggest pro of homeownership is the ability to build equity. Unlike renting, where you’re just paying your landlord’s mortgage, when you own your home, you’re paying down your own mortgage.
Over time, as your home appreciates in value, you build equity. This is like a forced savings plan and is one of the biggest advantages of owning a home.
Another big advantage is that you have the freedom to make changes to your home. If you want to paint the walls or renovate the kitchen, you can do it! You’re not at the mercy of a landlord who may or may not approve your renovations.
Of course, there are some cons to homeownership as well. The biggest is that it is a big responsibility. You’re responsible for all the repairs and maintenance. This can be expensive and time-consuming.
Another downside is that you may not have the flexibility to move as easily as you would if you were renting. If you need to move for work or want to downsize, it could be difficult to sell your home quickly, especially if it’s a buyer’s market.
Take these pros and cons into account when you’re deciding if it’s a good time to buy. Which of these apply to you?
What is Your Financial Situation?
Another key factor is your financial situation. Do you have a steady income and good credit? If so, then you may be in a good position to buy a home. However, if your income is inconsistent or you have bad credit, you’ll want to wait until you’re more financially stable.
Make sure to check your credit report before you start on your home buying journey. There may be things you can clear up right away to bring your score up. Credit scores play a huge role in what kind of rate you’ll be able to get.
You will also need to take a look at your monthly expenses. Do you have a budget? Have you been tracking your expenses? If not, you need to start. By making a few adjustments and key financial decisions (like paying off high-interest debt) you’ll be surprised at how many areas you’ll be able to save money, helping you become more financially prepared to buy your new home.
Down Payment Information
How much can you afford to put down on a house? It’s one of the top financial decisions you’ll need to make. This ties into your personal finance information and is one of the main factors for a lot of people when deciding on a home purchase.
Generally speaking, the minimum down payment to buy a house in Canada is 5% but there are some conditions that include:
- It has to be your primary residence.
- if the purchase price is over $500,000, anything over $500K is a minimum of 10%
- The funds are personal (gifts are the exception, with rules that apply to them)
Mortgage default insurance is required if your down payment is less than 20% of the purchase price. This is to protect the lender in case you can’t make your mortgage payments and default on your loan. The premium for this insurance is added to your mortgage.
Down Payment Programs
There are some great programs available to help you if needed. These programs include the First-Time Homebuyer’s Incentive, the Home Buyer’s Amount, the Home Buyers’ Plan (HBP) and the GST/HST Housing Rebate. For more information, take a look at this down payment resource page we’ve created which outlines how much you need for a down payment.
So is it a good time to buy a house? There’s no simple answer to this question. It depends on your personal circumstances. However, if you’re thinking of buying a house in Edmonton and you have a steady income and good credit, now is a good time to start your search. Currently, there are still many properties available. Plus, with interest rates still low, it’s a great time to buy!
If you feel that now might be the right time for you, get in touch with us today and speak to one of our Area Managers to find out how they can help.
Originally published October 19, 2021, updated October 27, 2022
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