Don’t wait to buy a house
Four reasons you should get in the market now
By Lindsay Smithy/Real Estate Columnist
Values are up! I mean, the values have skyrocketed! There is quite a bit of commentary about it being impossible to buy with the current increases, or that people are being shut out of the market. What if I told you, you really can’t afford “not” to buy now? That this might just be a window of opportunity. Call me crazy, however, let me bend your ear and explain.
The average detached home in Oshawa is right around $850,000. A year ago, it was $591,000. The values have jumped over $200,000 in a year. A good reason not to buy, huh? Again, stay with me, honestly, I have not slipped over the edge.
Let’s begin with looking at home ownership in Canada. The latest statistics we can find about the percentage of home ownership in Canada comes from 2019. The number of Canadians owning homes at that point was 68.55 per cent, up from 66.2 per cent in 2017. Since this time, our real estate board has had record numbers of homes sell. It doesn’t take an economist to conclude that home ownership in Canada is on the rise. It is still the place most Canadians have the bulk of their investment dollars. Let’s get to why I feel it is the time to buy a home.
I believe we will see two separate happenings over the next five years that will affect the costs of owning a home in Durham Region. The values will continue to rise and mortgage rates will increase.
The Bank of Canada has indicated that they will hold rates until the economy begins to move, with their sights originally set on 2023. Lately there has been some banter that they may move rates up in 2022. Mortgage rates are rising. We just do not know which quarter the banks will increase the cost of borrowing. As for values rising, we are in a perfect storm with regards to supply and demand. With roughly half of new Canadians settling into the GTA, buyers moving out of Toronto heading to smaller towns as they work at home and condo dwellers swapping out their homes for detached properties, the number of buyers have risen dramatically. On the supply side we are in crisis; different levels of governments have increased the costs of getting shovels in the ground, the red tape is taking years to work through, and environmental concerns are restricting where property can be developed for new homes. The one outlier is the costs of building. Building materials have increased more than home prices and that will ultimately reflect the prices of new homes. The laws of supply and demand are at play and when demand is high and supply low, prices increase.
Let’s make a “reasonable” forecast. When I get my crystal ball out, shine it up, and see what she has to say, it is not a stretch to believe that mortgage rates will increase at least 1 per cent , from around two per cent to three per cent, and values will increase for detached homes $100,000 over the next five years, (this is a conservative increase, 12 per cent over a five-year cycle.) Here is how that will look compared to where we are currently.
As mentioned above, the average detached home in Oshawa is $850,000. With a 20 per cent down-payment and a two per cent mortgage rate, the payment would be $2,879/month. When that average moves to $950,000, the down-payment increases by $20,000 to keep at 20 per cent down. With rates moving to three per cent, the monthly mortgage payment becomes $3,596/month.
If a buyer decides to hold off for five years, saving to build up a larger down-payment, here is what the differences look like compared to buying now:
- The down-payment increases by $20,000.
- The price paid for the average home has jumped by $100,000.
- In five years at three per cent the new mortgage is $717/month more than buying now. ($43,000 over five years)
- If a buyer bought now, they would have paid $110,000 off the mortgage over the next five years.
Wowza! It is pretty clear that the best time to buy a home was about five years ago, and the next best time is now. By holding off, many of the buyers that could purchase today may be pushed out of the market. I am in no way making light of the cost of homes currently, it is just that there is little to indicate that the market is going to be easier to enter. (One thing I didn’t touch on, is a buyer who holds off for five years has to live somewhere, and the costs of rent are as elevated as home prices are)
My suggestion is to get your foot in the door. No matter if what you can afford is a condo, townhome or a property with some rental income, buy something! Once you become one of the 66 per cent of Canadians who are homeowners, you have an asset that will increase in value with the market trends. In five years you may be on the move to what you have dreamed of living in, with a ton of cash to spend. It all begins with getting your foot in the door. Literally.
If you have any questions on the above information, I can be reached at lindsay@buyselllove.ca or www.buyselllove.ca.