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If buying a first home gets more affordable in the year ahead, expect the trend to be part of a larger story of economic disruption involving layoffs and more households fighting to keep up with their debts.

As a first-time buyer, you may not feel it’s the right time to get into the market if all of this is happening. But when the economy is strong, so is real estate.

A quick recap of the financial landscape in fall 2023: economic growth is slowing, and we could soon be in a recession. Things could get interesting next year for young people priced out of the housing market if prices begin to ease.

Some thoughts on getting ready to jump into a falling market: Guard your credit score, cut debt, pay off your credit card bill on time and work toward a raise or promotion at work. Keep your down payment savings in a first home savings account and, if there’s even a remote chance of buying in the months ahead, grab a mortgage rate hold.

Stress Test podcast: The struggle is real - how homeowners are coping with soaring mortgage rates

We need both lower rates and lower prices to make home ownership more attainable. Prices are well off the peak of early 2022, but a recent National Bank Financial report says housing affordability today is at one of the worst points since the double-digit interest rate days of the 1980s.

High mortgage rates are the reason. Discounted one-year rates can be as low as 6.8 per cent these days, while five-year rates are around 5.65 per cent at best and variable-rate mortgages are around 6.3 per cent. Lower rates depend on inflation falling steadily from its current level of 3.8 per cent. We haven’t seen that yet, but a slowing economy should help.

Lower rates are possible in 2024, but dramatic improvements are unlikely. Last week, the senior deputy governor of the Bank of Canada warned of the growing likelihood that rates would not return to the low levels of the past 15 years. The rationale for getting a mortgage rate hold now: Head off the risk of mortgage rates going up instead of falling.

Now, for real estate prices. The hard truth here is that major pullbacks in home prices are rare in Canada. Since 2000, there have been just two years where the average national resale home prices fell on a year-over-year basis, data from the Canadian Real Estate Association show.

The indicator to keep your eye on for home prices is the unemployment rate, which has risen to 5.7 per cent recently from 5 per cent in the first four months of the year. Many households are already under pressure as a result of inflation and high interest rates. Job losses or reduced income could push some over the edge, causing them to sell their homes or default on their mortgages. The effect would be to push prices down.

Rising unemployment has a psychological effect as well. Buyers get choosier and less willing to extend themselves financially to buy, while sellers have less leverage in pricing their property.

Building more houses has been talked about a lot as a way to improve housing affordability, and it will help a little if it ever happens. But prices and rates are the big drivers of affordability.

One of the best things a young buyer can do to prepare for buying a home in 2024 is to build a high credit score. If the economy is soft, lenders may be more cautious in assessing mortgage applications from people with weaker credit histories. That in turn would mean fewer buyers competing for homes.

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Late credit card payments erode your credit score, so avoid them at all costs. To stay onside with your cards, consider setting up monthly automatic payments for the amount of your credit card statement balance. Do this only if you can cover the full balance.

Another way to enhance your creditworthiness is to pay down any student debt or other loans as much as possible. The less you owe as you apply for a mortgage, the more borrowing power you have.

For building a down payment, a first home savings account is almost mandatory because of the two-tiered tax advantages. You get a tax deduction on contributions, and tax-free growth and withdrawals.

FHSAs won’t get you all the way to a home down payment – there’s a cap on contributions of $8,000 annually and $40,000 lifetime. But they’re too good to pass up, even considering the possibility that you never buy a home. If that’s how things work out, you can transfer an FHSA into a registered retirement savings plan tax-free and use it for retirement.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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