The real estate market in 2023 has undergone significant changes, primarily due to the rapid
surge in interest rates. Just a few years ago, we were quoting insured rates as low as 1.30%,
but today, interest rates are hovering around 5.54% or even higher, depending on lenders and
type of purchase. This sharp increase in rates has created turbulence in the housing market,
leading to price declines in some areas. While the current environment may raise concerns for
property investors, particularly those considering rental properties, it’s important to explore the
potential landscape for 2024 and beyond, with the assumption that rates will eventually return to
a pre-pandemic norm of under 5%.
Finding Optimism Amidst Challenges:
While the prospect of high interest rates may appear intimidating, there are reasons to be
optimistic. Economic dynamics are in a constant state of evolution, and there is a prevailing
belief that variable rates will eventually decrease, especially as the economy stabilizes, and
inflation comes under control.
2023: A Risk Worth Considering?
For individuals contemplating investment property purchases in 2023, the current situation offers
a blend of challenges and opportunities. While higher interest rates today might deter some
investors, the allure of acquiring properties at comparatively lower prices is enticing. Adopting a
long-term perspective becomes crucial in this context.
The Key Consideration: Cash Flow
While fixed rates may currently appear appealing due to their lower levels compared to variable
rates and the sense of financial security they provide, it’s essential to consider the possibility
that you might be locking into a long-term contract at a higher rate, particularly if we are at the
peak of fixed and variable rate mortgages at the moment. This decision hinges on various
factors, including your financial goals, risk tolerance, and your outlook on interest rate trends.
Careful consideration and consultation with a financial expert can help you determine which
type of mortgage best suits your needs and circumstances.
Fixed Rates: These offer payment consistency but may entail higher costs and limited flexibility
if rates decline during your term. This option provides stability but may involve a higher initial
Variable Rates: Although initially demanding, variable-rate mortgages can yield significant
benefits as interest rates trend downwards. However, they are subject to fluctuations, and the
initial payments may be higher.
The key is to take advantage of lower initial interest rates and anticipate a possible decline in
rates in the future.
Here’s a simplified breakdown of how this strategy might work:
1) Start with a variable rate mortgage with lower initial rates.
2) As rates may decrease over the next few years, your mortgage interest expenses could
also decrease, leading to potential savings.
3) In 2026, if rates indeed reach a low point, as predicted, you might have the opportunity
to switch to a new 5-year fixed-rate mortgage at a significantly lower rate.
4) By locking into this lower fixed rate for an extended term, you can enjoy stability and
potentially reduce your overall interest costs over the remainder of your mortgage.
However, it’s crucial to note that this strategy involves some level of interest rate speculation, as
predicting future rates is challenging. To mitigate risks, you should consider your financial
situation, risk tolerance, and the potential impact of rising rates on your budget. Consulting with
a financial advisor or mortgage expert can help you make an informed decision based on your
specific circumstances and market conditions.
The Future Outlook: Patience vs. Action
As we look ahead to 2024 and beyond, it’s important to remember that the real estate market
operates in cycles. The challenges posed by rising interest rates today are likely to evolve as
economic conditions change. While some investors may consider selling due to reduced cash
flow, those who persevere may find themselves in a more favorable position when rates
Why Consider Variable Rates Now?
A question that arises is why opt for variable rates now when you could wait for rates to lower in
the future? The answer lies in seizing the opportunity when property prices are low. Waiting for
rates to drop may seem like a prudent move, but it’s worth noting that property prices have seen
a significant decrease over the past year. By purchasing at a lower price today, you may lock in
a lower interest rate in the future. Additionally, you won’t have to compete with a rush of buyers
in 2-3 years when rates are lower, but property prices are high.
In Conclusion: The Dynamic Real Estate Game
In summary, the decision to invest in real estate in 2023 involves a careful evaluation of current
conditions, risk tolerance, and long-term financial goals. While the environment may seem
challenging, with proper planning, a forward-looking perspective, and the ability to adapt to
market conditions, investors can navigate the 2023 housing market and position themselves for
success in the years to come. Despite the uncertainties of 2023, the world of real estate
remains dynamic, offering potential rewards on the horizon.