Pattie Lovett-Reid: Waiting for a real-estate market correction? What you need to know
HUNTSVILLE, ONT. -- Real estate is often the financial foundation for many families.
You can't put a price on the dream of home ownership, but you can hope prices head lower.
In fact, more than one in five Canadians are hoping for a home-price crash according to a new report from the Angus Reid Institute. Twenty-two per cent of respondents said they are hoping prices will fall at least 30 per cent, while 14 per cent of respondents said they want to see prices rise by at least the same amount.
Clearly this depends on whether you are a buyer or seller.
Real estate investment in Canada has been a silver lining because without it our growth would have been devastating and a serious real estate market correction equally so. The real estate market fuelled by lower rates was necessary, according to the former Bank of Canada Governor, to help kickstart the economy. When you think about investment in Canada there has been virtually none - other than investment in the real estate industry. The real estate market has helped the economy avoid a recession.
The rise in real estate prices has caught the attention of just about everyone from politicians, economists, lenders to sidelined critics. Talking real estate has become as common as talking about the weather. And what do they have in common? We don’t really have control of either.
So if you can't control the price, what can you control?
1. Ensure you are pre-approved. Number one:If you can't secure a mortgage and you make an offer you run the risk of losing your deposit. You need to clearly understand how much you can afford to spend and it might be in your best interest to shop around for a great pre-approval rate.
2. Assemble your documentation so it accurately reflects who you are financially. A typical list includes identification, listing of your assets, proof of income such as pay stubs, employment letter and notice of assessment if you are self-employed. And information about the amount of debt you may be carrying.
3. Read the fine print -- your pre-approval will highlight important data such as your mortgage rate and all the terms and conditions. Being pre-qualified is not enough in this market as most sellers aren't likely to even entertain an offer without a pre-approval letter.
Once you have covered the basics now comes the fun part in searching out the property that best suits you. And while you do that get your finances in order so you are ready and able to move according to your expectations and not a 90-day closing period.
Finally,limit the opinions you solicit. Everyone has an opinion onwhether now is the time to buy or sell and they may or may not differ from yours. All that really matters is if you have the financial maturity to undertake a commitment of this magnitude,then the decision is yours and yours alone.
I believe you can't time the markets -- no one knows for sure if or even when a correction may happen, location matters and if you miss out on one home through a bidding process another will come along in time.
Don't give up and keep looking.
Remember that no trajectory is straight up and a correction could happen if more supply comes to market, rates could go higher or even if blind bidding wars are eliminated.
Remember this is as much a financial asset as it is an emotional asset. Set your limits and stick within it.
Whatever the trigger happens to be to bring housing supply and demand a little more back in balance, you have taken the time to increase the odds of finding your dream home by being realistic, thinking long term and by putting your financial house in order.
Here is something to consider. Later today the Office of the Superintendent of Financial Institutions is ready to consider and possibly opening up a consultation period to reintroduce the mortgage stress test for uninsured mortgages. This means uninsured borrowers will have to qualify for their mortgage based on their rate plus 2 per cent or the Bank of Canada posted 5 year rate, whichever is higher.
In an effort to ensure homeowners can afford their homes in a rising interest rate environment, this was implemented prior to COVID-19, but put on hiatus due to the pandemic and financial uncertainty. This might help to slow things down and force Canadians to save a little more to ensure they have the financial strength to weather higher rates.
Now all that’s left to do is make an offer.