How To Make $300k in a Down Market | Real Estate Investing in GTA

Steven Ho Buyer

Home prices have dropped by $400k since February and here’s why you should upsize now. 

If you’re trying to time the market, how do you know when you should jump in? Interest rates have been going up and are expected to continue to go up some more. Prices have been dropping and are expected to continue to cool down some more. But will the prices drop enough to cover the rise in borrowing cost?

I ran some numbers to see if and when would be the best time to upsize. (I did this in June but the prices still weren’t low enough to really save you money.) Until now.

You may have heard the saying, upsize in a down market and downsize in an up market. We can’t change the past, but we can plan for the future.

GTA Price Drop Feb 2022 vs. Sept 2022

Let’s compare the price difference in the different segments from the peak of the market to now.

  • The peak of the market was February and then the interest rate hikes began.
  • Interest rates have gone up 1200% (0.25% to 3.25%) and that caused Mississauga average home Prices to drop down 12%. T
  • The Average Mississauga Detached home has come down just over $400k, semis have dropped $325k, townhomes down $222k and condo apartments have come down $128k.
Property Type Avg. Price Feb 2022 Avg. Price Sept 2022 Price Drop 
DETACHED $1,921,283 $1,521,265 $400,018
SEMI-DETACHED $1,314,703 $989,240 $325,463
TOWNHOMES $1,289,680 $1,067,088 $222,592
CONDO $830,229 $702,006 $128,223

Interest Over 5-Year Term Difference Feb 2022 vs. Sept 2022

Price savings is one thing, but with the interest rates going up so much, it’s still unaffordable! But how much more does it actually cost per month?

Here’s the scenario, running the calculations for the cost of borrowing with the interest rate from February vs September, we assumed a 5 year fixed, 25 year amortization with 20% down payment.

  • Feb monthly payments are based on a 3.02% interest rate and Sept monthly payments are based on a 5.34% (Sept 8) interest rate.
  • You can see that detached homes even with the price drop, are costing you $90k more over the 5 years in interest. Over $51k for semis, $69k for townhomes and $47k for condos. 
Property Type Monthly Payments Feb 2022 Interest Over 5-Year Term Monthly Payments Sept 2022 Interest Over 5-Year Term Interest Over 5-Year Term Difference
DETACHED $7,290 $214,627 $7,316 $304,785 $90,158
SEMI-DETACHED $4,988 $146,866 $4,757 $198,164 $51,298
TOWNHOMES $4,893 $144,070 $5,131 $213,758 $69,688
CONDO $3,391 $92,745 $3,376 $140,625 $47,880

GTA Monthly Payment Feb 2022 vs. Sept 2022

Notice the monthly payments are not too far off and are quite similar. Price drops and increased rates tell us that people are buying based on their monthly affordability. It’s not like wages have changed much in half a year, people’s budgets have changed because of interest rates and housing prices have reflected that. 

Property Type Ave. Price Feb 2022 Monthly Payments Feb 2022 Ave. Price Sept 2022 Monthly Payments Sept 2022
DETACHED $1,921,283 $7,290 $1,521,265 $7,316
SEMI-DETACHED $1,314,703 $4,988 $989,240 $4,757
TOWNHOMES $1,289,680 $4,893 $1,067,088 $5,131
CONDO $830,229 $3,391 $702,006 $3,376

SAVING BIG if you are upsizing now!

Now prices have dropped enough for the numbers to make sense. You have to consider the increased interest rates for the entirety of the mortgage term because you’re locked in at that interest rate. Note: after 5 years, both situations will need to renew their mortgage at the interest rates at that time which should be similar. 

Price Drop Since Feb 2022 Interest Over 5-Year Term Difference SAVING
$400,018 $90,158 $309,860
$325,463 $51,298 $274,165
$222,592 $69,688 $152,904
$128,223 $47,880 $80,343

So if you’re in a condo and want to upsize, in February, you would’ve paid almost 1.1M more to upsize to a detached, over $480k for a semi and over $450k for a townhouse.

If you do the math, now you only need 820k more to get a detached, 287k more to get a semi and 365k more to get a townhouse.

When you upsize to a detached now compared to February, you are now saving $271k, 197k for the semi and 94k for the townhouse.

If you’re in a townhouse looking to upsize to a detached home, you’re saving $177k by doing it now compared to if you did in February.

Property Type Ave. Price Feb 2022 Upsize Townhouse Ave. Price Sept 2022 Upsize Townhouse Savings
DETACHED $1,921,283 631,603 $1,521,265 454,177 $177,426
TOWNHOMES $1,289,680 $1,067,088

It all starts with first-time buyers and entry-level purchases.

When you compare the price drop with the increased interest, you are now saving a lot more than if you were to buy earlier. The question is if you can qualify at the current rates. As of this recording, the stress test is still required to qualify. Mortgage rates are now over the 5.25% qualifying stress test rate, so you’ll still need to add 2% above the rate you get from the bank. For example, if your 5 year fixed rate is 5.34%, you have to qualify at 7.34%. 

First-time buyers get a condo, which allows those sellers to upsize to a townhouse or semi and those semi sellers to buy a detached home, and so on and so forth. But now with rising interest rates, Buyers’ budgets are being slashed so that some buyers might be taken out of the market. Some buyers just buy smaller ones because they still need a place to live. Some people can’t upsize because they can’t borrow enough to make it possible to buy what they want so they stay put. This is why the number of sales has dropped.

Here’s what $1.5M can get you right now in Mississauga: 

Option 1:

  • Listed for $1,498,000 (Sold:$1,390,000)
  • 4 bed, 3 bath, detached home with double garage, fenced yard, partially finished basement
  • 2200 sq ft. On the market for 3 weeks. 

Option 2:

  • Meadowvale school district in Lisgar
  • $1,300,000 (Sold:$1,360,000)
  • 4 bed 4 bath detached home double garage, corner lot, fenced yard, landscaped, finished basement, fully renovated
  • Just over 2000 sq ft. 

Every neighbourhood will be slightly different, every situation is unique. If you want a more specific analysis of your situation to see if it makes sense for you to upsize, book a free call in the calendly link below.