Stop waiting for the perfect conditions to buy.
As rates continue to trend upward, sales drop off and home values are seeing decreases in all urban centres, more and more Canadians are choosing to sit back and wait for a “sweet spot” in the market to get the most value for their buck. But there are a number of reasons why this old “timing the market” mentality should be done away with in favour of spending the most time in the market you can.
I get it - being constantly bombarded with news of historic market corrections, forecasts of the BoC overnight rate surpassing 2008 levels and a media frenzy about the uncertainty of Canadian real estate, it makes complete sense that you might want to take a back seat and wait for it all to blow over. But did you know, however that there are a number of reasons why getting into the market now (or when you are ready, despite market conditions) is the best time to buy? In fact, there are a number of ways waiting the market out in an attempt to save money might end up actually costing you in the long run.
“Rates are so high - I’m going to wait for them to come back down”
Of course it makes sense to wait for rates to come back down, in theory, since history dictates that what goes up will come down. However, keep in mind that in our current environment, rates are going to continue to trend upward before going back down. Generally, the signal for rates to start decreasing comes when the market starts to see more balance. Unfortunately, this is the same balance that also informs market pricing. This means that if you wait too long for rates to come back down, you might also miss the opportunity to buy while prices are lower.
Take a look at the example on the left. You can see that even with rates more than 2% above where they were in February, payments on the same home purchased just this summer at the market’s peak are almost identical thanks to a dip in prices. We know that as rates go up, more buyers will leave the market, causing prices to drop further and help to keep the effects of higher rates at bay.
“But prices are going to keep dropping, so I’m going to wait until they hit the floor.”
This is a common sentiment among many would-be homebuyers right now. Coming out of a market that saw prices hundreds of thousands of dollars higher than just a few short years ago, forecasts prices trending downward (and dropping by as much as 15%) has buyers chomping at the bit for their big moment when the market “crashes,” prices bottom out and they are suddenly able to purchase a property at a deep discount. But there are a few things to keep in mind here:
While there are real estate professionals all over the country projecting that prices will drop, nothing is written in stone. Waiting for a dip in the market that might never actually happen is taking a gamble, and could be causing you to miss out on very real opportunities now.
One of the most valuable assets of today’s market is the lack of competition. For years, buyers have faced multiple-offer situations and been forced to make risky offers quickly to secure one of the few homes that hit the market in their range. With more buyers on the sidelines right now competition has slowed and more inventory is available, giving buyers more bargaining power. If you wait for prices to hit the floor, you can be sure that droves of like-minded buyers will flood back into the market soon thereafter and in turn, prices will come back up quickly.
“I don’t want to buy until I have 20% down - those insurance premiums are so expensive.”
This is one we hear almost daily, especially from first time buyers who are dead-set on skipping the mortgage default insurance which is necessary for buyers who opt to put less than 20% down. And of course there are instances when this is a prudent plan. However, let’s look at one example of a time when biting the bullet and taking the insurance might actually be the more affordable option:
You are looking for a home around $600,000 and want to save a 20% down payment of $120,000. If you can manage to save $500 a month on top of paying upward of $2500 for rent, it would take you roughly 20 years to save. Or you could put down the minimum of $40,000 (5% on the first $100,000 and 10% on the rest) today. This would mean you would be responsible for $22,400 in insurance premiums over the lifetime of your loan, split up among your monthly payment. If you made this purchase today with a fixed rate of 4.19% on a 25 year amortization, your payment would be $3123.82 - only about $600 more than your presumed rent. This would mean you could purchase now and start making equity gains sooner which, if you intend on holding the property long term, will prove much more valuable than saving that $120,000 would have been in the long run!
There are about as many ways to navigate the real estate market as they are buyers in Canada, so there really is no right answer on what the “best” time to buy is. However, we do know that if you are planning on holding on to a property long term (which is why most of us buy our homes, really), then the wealth you will be building in your home if you buy right now will far outweigh any savings you would see by trying to wait for the perfect time in the market, or to have the biggest possible down payment saved.
If you’re thinking about buying this fall, despite the doom and gloom, give our team a call today. We are here to help navigate these murky waters!
