Over the past two months, the Bank of Canada has implemented two interest rate cuts, and the consensus is that there are more to come. As inflation begins to stabilize, and employment figures shift rates tend to come down to stimulate spending.

When it comes to housing, historically, when interest rates decline, home prices go the other way.

Let me explain why this happens and what it means for you as a homebuyer. When most people start their home-buying journey, they do so with a clear budget in mind. This budget is less about the total purchase price and more about what they can comfortably afford on a monthly basis.

Here’s where interest rates come into play: the lower the rates, the more you can qualify for. For example, a 1% drop-in interest rates can potentially increase your mortgage qualification by around  $50,000, assuming all other factors remain the same. For a potential borrower it could increase their purchase price by at least $50K. In essence, your budget stays consistent, but your borrowing power increases.

So, with these recent rate decreases in mind, consider this question: Would you prefer to buy a home when prices are lower, but interest rates are higher, or when interest rates are lower but home prices are higher?

This decision hinges on your personal circumstances and market conditions, but understanding the relationship between interest rates and home prices can help you make a more informed choice. Set up a call to discuss your buying potential today so you can make an informed choice.