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In an expensive housing market, it only takes a small price drop to help buyers save big time.

Someone who bought an average-priced home in Toronto in May instead of April would have saved $56,881. That's a substantial $234 a month for someone who made a 10-per-cent down payment on the average Toronto home in May and borrowed the rest at 2.5 per cent over a term of five years.

Any millennial home buyers out there who are waiting to buy a home until prices become affordable? Watch Toronto – it's a model of the favourable buying economics that result when prices move lower.

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Prices in the city fell 6.2 per cent from April to May, which suggests that measures recently introduced by the Ontario government to cool the housing market are having their intended effect. Average Toronto home prices last month were still pretty much double what they were as recently as 2010, and they were 15 per cent ahead of the level in May, 2016. But the month-to-month trend is the one to watch right now because it best captures the latest market conditions.

There's a definite sense of a cooling market in Toronto that goes beyond the quieting of bidding wars and chatter about people trying to back out of deals. Worried about losing out on high prices, more people are listing their homes for sale. Meanwhile, the number of houses sold was down on both a monthly and annual basis.

The difficulty for buyers is in deciding whether the May numbers represent a short-term blip or the beginning of a larger pullback that will let them buy a home at prices far below what buyers are paying today. CIBC Economics issued a commentary earlier in the week predicting the May decline will be short-lived in the same way as Vancouver's market seems to have slowed only temporarily after measures taken there last year to limit price increases.

It's agony to strategize when you're desperate to buy a house and affordability may finally be coming into reach. If you buy today in Toronto, the market could tank soon after and leave you with a massive case of buyer's regret. If you wait, further price gains could delay your path to home ownership indefinitely while you save more. Call it procrastinator's regret.

The best approach might be to focus more on affordability than speculation about what will happen to prices. Use our Real Life Ratio calculator to find the house price that allows you to afford your mortgage, utilities, property taxes, home maintenance, daycare, car payments and saving for retirement. For example, you might find that your household income and expenses would allow you to carry a mortgage of $825,000. In Toronto, a further decline in prices of 5 per cent would get you just below that threshold. You could buy at the level with the assurance of knowing you are able to handle it financially.

Because houses are so expensive in cities such as Victoria, Vancouver, Toronto and Hamilton, a small percentage decline can have a helpful impact in dollar terms. The Toronto-area average house price fell to $863,910 in May from $920,791 in April, which would lower your total mortgage costs over five years by just over $14,000 in combined principal and interest.

The underlying assumption here is that mortgage rates stay put. There is currently no upward pressure on fixed-term mortgage rates, but that could change if the strong growth numbers the economy has produced lately continue. Even if you're just musing about buying in a falling housing market, get a lender to hold a rate for you. Some will go as long as 120 days.

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CIBC believes there will be more downward pressure on prices in the next few months. But given the lack of an "external shock," the decline is expected to be temporary. Examples of such shocks would be a big increase in interest rates, or a sharp rise in the unemployment rate.

For aspiring buyers, this outlook should dampen any hopes of a sharp price decline in the near term. Modest price declines such as the one we saw in Toronto last month may be the best you get. Fortunately, a little price decline goes a long way in an expensive market.

A little goes a long way

In an expensive housing market, even a small price decline can lower your mortgage costs significantly. Here's an example from the Toronto market using a five-year, fixed-rate mortgage at 2.5 per cent with a 25-year amortization period. A 10-per-cent down payment is also used here.

Toronto Housing: April 2017Toronto Housing: May 2017Mortgage Savings
Average PriceMonthly Mortgage PaymentAverage PriceMonthly Mortgage PaymentSavings on Monthly PaymentsTotal Principal and Interest  Saved Over Five Years
$920,791 $3,801 $863,910 $3,567 $234 $14,090 

The Mortgage Group online calculator

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