Rather than suffering a crash, Canada’s real estate market has been barrelling ahead. Find out what this means for buyers…
While stories south of the border speak to an ongoing real estate crisis, where foreclosed homes descend into disrepair, and neighbourhoods are reclaimed by weeds and wanderers, the story in Canada has been much different. Rather than suffering a crash, Canada’s real estate market has been barrelling ahead. Does this mean we’re headed for the same dramatic bubble and bust the U.S. – and many other countries – have recently experienced? Mortgage experts say probably not, suggesting that while Canadian real estate prices are probably over-valued, the overall economic climate suggests they are more likely to plateau than plunge.
In 2012, the real estate market is shaping up to be unique in a few key ways. This means that as with any market, it won’t benefit everyone. Here’s how new homebuyers and current home owners can make the best of what it has to offer.
1. Buy now – if you’re ready
The Bank of Montreal recently promoted a fixed five-year mortgage at 2.99 percent – the lowest posted rate in Canadian history. Toronto Dominion and Royal Bank of Canada quickly followed suit with similar offers. Although these ultra-low rates are temporary promotions, overall long-term real estate borrowing rates are at their lowest in Canadian history. In other words, it just won’t get much better than this. First-time home buyers are often skittish about dipping a toe into an uncertain market environment, but for those who have a solid down payment and are ready to make a commitment, there’s no time like the present. That isn’t to say the market won’t become more favourable in the coming months or years. It could also become less favourable. That’s just how markets work. If you want to buy, try to avoid being distracted by dire market predictions in favour of getting in when your resources and sense of reason dictate.
2. Take your time
A few years ago, many real estate markets were ultra-hot, forcing buyers to sign contracts before they’d even had the chance to tour the third bedroom. According to a recent report by The Globe and Mail, things are a lot more placid these days, and that’s a great thing for buyers. If you’re in the market for a home, take advantage of this temporary ceasefire by touring many homes in the neighbourhoods that interest you, taking your time to choose the right home for you, and making a complete home inspection a condition for any sale. And if you already own a home and are looking to sell, be prepared to put out a “For Sale” sign and wait.
3. Take advantage of low rates
Low rates aren’t just good for new home buyers. If you already own a home, you can take advantage of the savings a lower mortgage rate provides by renewing your mortgage at the lower rate, refinancing or locking in a variable rate mortgage. A few percentage points can make a huge difference in how much you pay. For example, a $300,000 mortgage at 4.75 percent over 25 years will cost you more than $200,000 in interest. Cut that rate to 2.99 percent and you’re looking at $75,000 in savings over the amortization period of the loan. Amazing, no? Keep in mind that refinancing often involves fees, and the savings you’ll incur will depend on the size and term of your mortgage. Even so, it’s worth asking your mortgage broker about the option and doing some math to determine whether you’ll come out ahead. If you have the opportunity to take advantage of lower interest rates, do it. Paying more interest than you have to amounts to throwing away good money, and who wants to do that?
4. Renovate rather than move
In some of the Canadian housing markets that experienced major price moves in 2006 through 2008, such as Alberta and Saskatchewan, those who bought at the market peak may now have homes whose prices have declined or barely moved since that time. For those who want to move, this lack of equity can be a real drag. If you’re stuck in this situation, consider sprucing up your current home, rather than looking for a new one. This is often a less expensive option overall, and current low interest rates may make borrowing the funds to renovate an existing home a practical alternative to packing up and moving away. So think about what you like – and can’t stand – about your current home. Then fire up your creative side and start thinking about what you can do to make it more like the home of your dreams. You’ll be amazed at how far a little renovating and redecorating can go.
5. Think about how much house you really need
If there’s one thing you should take from the real estate crisis in the U.S., it’s that a huge mortgage on a dream home can quickly become a nightmare. The pride in your shiny new fixtures, granite countertops and hardwood floors really pales in comparison to being able to comfortably pay your mortgage – and still have some money left over to live your life the way you want. Whether you’re shopping for a first home, thinking about downsizing or something in between, remember that home ownership should be a feather in your cap, not a ball and chain. Choose a house you can live with at a price you can afford and do your best to pay it down as quickly as you can. After all, a true dream home is one that’s mortgage free!
What does the future hold?
Exactly what 2012 holds for real estate in Canada remains to be seen. You can’t predict it, you can’t time it, but you can roll with the punches and react to the changes it brings for owners and buyers. And no matter what the market does, remember to do what’s right for you.
Article courtesy of Golden Girl Finance – finance for women, by women.