I’m sitting at my desk calculating what my mortgage payments will be when I renew it in 2024. At the current rates, my mortgage will be an extra $1000 per month.

That’s a significant difference. It’s not enough to compel me to sell my house. But it is enough to make me nervous.

Maybe I’ll cancel my vacation plans. Or find other ways to save money, like shortening the length of time I send my boys to summer camp. I’ll drive my smaller, older car because it is better on gas. I’ll cook more and order in less. I’ll stop buying so many clothes (unlikely, TBH). I’ll delay non-urgent home improvement plans.

This mental arithmetic of lifestyle trade-offs is what Toronto buyers are doing right now. This is why house prices have decreased, and houses sit on the market for longer. More than the numbers on a pre-approval letter, these real-life trade-offs are starting to sink in for buyers. I am currently working with several buyers who have two different budgets.

The first budget is if they can buy a house before their current pre-approval runs out. The second budget is if they need to update their mortgage pre-approval and their interest rate goes up by 1.5 to 2%. Hundreds of thousands of dollars separate these budgets, but my client’s monthly payments wouldn’t change. In other words, take out a mortgage for $1,000,000 with a pre-approved rate of 3.6%; your monthly payment would be approximately $4367/ month (approximately, depending on your amortization term).

But, a $1,000,000 mortgage at 5% is $5360/ month (approximately). Your monthly payments have gone up dramatically and all that extra cash goes directly the bank. This means that even if your house is cheaper, in the long term you’re paying a lot more money in interest. This is a real situation for buyers with pre-approvals that run out in a few weeks.

➤ Want to learn more about the Toronto real estate market? You might also like:

1. The Market Has Changed. Your Selling Strategy Should Too.
2. Is the Real Estate Market Crashing? 2022 Edition
3. When and How Should You Buy a House in West Toronto
4. Is the Toronto Real Estate Market Now a Buyer’s Market?

Surprisingly, expiring mortgage pre-approvals are not motivating buyers to move quickly. Typically, with small interest rate hikes, we see a flurry of buying activity while people try to make the most of their lower interest rates. However, buyers see houses sit on the market, prices go down, and they think, “What’s the rush?”

These lifestyle trade-offs have always been a topic for people when buying real estate. How much of your lifestyle are you prepared to give up in exchange for buying a house in Toronto? When prices rose, buyers forewent luxuries because they felt a time crunch. If they didn’t buy a home now, prices would go up so much that they’d be priced out of the market in a year. Interest rates were so cheap that it made sense to extend yourself to get into an impossible market.

Now, the situation is different. Buyers can be assured that prices won’t rise this year, and even the rising interest rates aren’t compelling buyers to make their move. Prices have stabilized, and some neighbourhoods have gone down. Therefore, buyers are far less willing to compromise their lifestyle for the sake of a house. Instead, they’re ready to wait for the perfect home.

The market is slower, and prices are down because buyers don’t feel any urgency and are not willing to buy a house they don’t love when interest rates are so high. The implications of interest rates aren’t just the numbers on the mortgage. It’s what that money represents to buyers. Buyers will pay the higher interest rates if it means that they’re buying a home they love, in a neighbourhood they love and they won’t need to stop going on vacations. The idea that you need to buy into the real estate market at any cost is gone.