With news reports this week suggesting the Canadian property market might be in a bubble, is this the right time to buy? If the market is in a bubble that may mean that prices may fall in the next few years, rather than continuing to rise. When prices have been rising consistently as they have been, it can be difficult to imagine them ever falling. There are plenty of reasons to think that they won’t. While a crash cannot be ruled out, as Larry McDonald made clear in his recent blog, Canada’s housing market in 2012 is not the US housing market of 2008. That said, buying your first home should always be approached cautiously. It is a major financial commitment and so before you buy, you should always look at three things: economic conditions, your personal financial circumstances, and what you want from your home.
Reasons to Buy
Buying your first home is an exciting prospect. If you have been renting for a while, then getting out of the rental market probably seems quite appealing. Most of us start to want to put down roots once we get to our late twenties or early thirties, and it can be difficult to feel as if you have a secure home if you are renting. Owning your own home gives you a level of control that you just do not have as a renter, even if you have the best of landlords. Owning your own place means being able to decorate as you like without having to check with your landlord and even knock down walls or take up floors if you want to. If you have a bad landlord, the urge to own is even greater. Anyone who has had to deal with a landlord who has not bothered with basics such as professional indemnity insurance will know how frustrating trying to get basic repairs done can be.
These are good reasons to get out of renting, but are they good enough reasons to buy? They are, if you approach buying with a little caution.
While we do not think that the housing market is likely to crash imminently, as some scare stories in the press suggest, prices can always go up and down, and so can interest rates. Don’t fall into the trap of thinking everything will always stay the same: the buyers that do that are the buyers that find themselves in trouble a few years down the line. Buy somewhere that you want to live in for the long-term, rather than viewing your home as an investment. If you can make it an investment, great, but remember that it is primarily a place to live. Then, if prices drop, as long as you can still afford your repayments you will be unaffected. Be cautious about buying with the minimum 5% deposit. If you do, make sure you are buying a home you want to stay, not sell up and move on from in a few years. This infographic shows what would happen to those with small deposits if prices dropped 15%. That is an unlikely scenario, but it is one worth thinking about.
Your personal finances are just as important, if not more so, than the wider economic conditions. If your mortgage repayments will be higher than your current rent, think very carefully about buying. Are you sure you can afford the repayments? What about if your salary dropped? Some careers have a steady upwards trajectory, but by no means all of them. Remember that interest rates are likely to rise from their current low level, and you will still owe your mortgage when they do. You cannot plan for every scenario, but you can give yourself a fighting chance.
Your Dream Home
Getting your finances right is vital when you want to buy, but as long as you make sure that you are buying for the right reasons, you are unlikely to regret anything. Buy a home you really love, and that you will want to stay in year after year. It is the newly-built condos in the big cities that overvalued, because they aren’t the kind of homes people love. They are homes people buy just because they want to buy, planning on moving on in a few years. If you can’t find what you want for the price you can afford, consider looking in another area, or waiting until you have saved a bigger deposit. Find the home you’ll be happy in ten years time, and you’ll weather any economic storm.