Is Now the Right Time to Buy?
Soaring home values have dimmed many Canadian’s hopes of climbing the property ladder. Among other things, down payments are now bigger and, for many, the mortgage stress test makes it harder and more expensive to get a mortgage.
More people are now asking: “is it the right time to buy?”
According to a recent Bank of Montreal survey, 40 per cent of first-time Canadian home buyers believe it is.
But that may not even matter. The reason: Canada has a largely stable economy with strong housing fundamentals and a robust well-regulated banking system. That means the chances of a housing crash are reasonably slim. For that reason, timing your purchase is much less relevant than in some countries. So is getting hung up on whether it’s a buyer’s market or a seller’s market.
The Canadian Mortgage and Housing Corporation (CMHC) cites 30 per cent as the recommended amount a household should spend on housing – but many Canadians are already paying more. In a recent survey conducted by RateSupermarket.ca, 44 per cent of renters said they spend more than 30 per cent of their income on housing, and 15 per cent said they spend more than half their monthly income on a home.
In that same study, 40 per cent of Canadians who rent and 27 per cent who already own their first home say they will likely spend more than 30 per cent of their income on their next home. That statistic likely reflects anxiety about the market and fear of missing the boat.
Most financial analysts agree that the right time to buy a property, if you don’t already own one, is “when you can.” Anybody waiting for prices to drop could be in for a long wait. You almost have to hope for an economic shock to counteract strong market conditions, and who wants to root for that?
Meanwhile, the First-Time Home Buyer Incentive (FTHBI) launched officially on September 2. It’ll have a minor impact on a small number of home buyers. For one thing, the rules of the program allow most buyers to borrow less than they would usually qualify for under traditional lending rules. That’s a bummer for those hoping the program would help them finally squeeze into home ownership. But it’s good news for those who worried the FTHBI might add to inflating house prices.
And here’s some more good news. Aggressive lender competition, economic growth worries and low bond yields have left interest rates unusually low. Assuming you qualify, rates are down almost a percentage point since November. That’s nearly $12,000 of interest savings over five years on the average new mortgage.
And let’s not forget the $10,000 increase in the amount buyers can draw from their RRSP to make a down payment. The revamped Home Buyers’ Plan further eases the down payment burden for savers hoping to acquire their first property.
In short, the best time to buy a quality property is almost always, “now.” Real estate has a good record of outpacing inflation, and most financial advisors consider a mortgage “good debt”. If you’ve got a stable job, a prudent debt load and solid credit, and you’re in a position to make a down payment on a reasonably priced home, there’s seldom a better time than the present to start property hunting.