Pattie Lovett-Reid: Is this a once-in-a-lifetime chance for first-time homebuyers to get into the market?
TORONTO -- The pandemic could be the gift first-time homebuyers have been waiting for.
Many parents have wanted to help their children financially buy their first home but in some cases it still wasn't enough for a downpayment.
Real estate prices have remained stubbornly high and the dream of owning a home has been pushed out further and further with stricter qualifying guidelines being enforced. The higher prices driving the higher downpayment, sidelining potential buyers who weren't quite ready for the financial commitment homeownership demands.
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The spring selling season that typically kicks into gear in March has clearly stalled due to the pandemic. Homes sales have cratered and prices are on the decline.
So is now the time to buy? Maybe.
Like any market, the real estate market is a forward-looking mechanism that tends to price in expectations for the future. That sounds great in theory but there are always golden opportunities that present themselves in times of grave uncertainty. We are in that period of uncertainty now. We are concerned about our jobs, wondering if mortgage rates heading higher down the road and worried whether there could be another shock to the economy such as a second wave of COVID-19?
It is uncertainty that creates opportunity if you have the financial clout and the courage to act.
There will always be real estate buyers and sellers. And while the way homes are bought and sold has changed the desire to own one for many has not. With virtual tours now in vogue and a workplace that appears to have shifted to working remotely, a generation once accused of wanting to be urban dwellers may find getting out of the big cities a preferred choice.
Back to the question: is now the time to buy?
Depends on who you are, how stable you feel your job is and if you can really afford a home and all that goes along with home ownership? The numbers are key as you need to know what you can afford (which right now is a lot more home than in February) and what you can't. Your financial institution, a mortgage broker and online calculator can help you determine the basics.
Homeownership isn't a dream or even a reality for everyone. All I'm suggesting here is that opportunities like this don't come along very often and when they do you need to be ready to go.
Mortgage rates and current home prices maybe be tipping the scale in your favour.
According to Ratehub.ca historic mortgage rate data shows over the last 10 years (Jan 1, 2010 - present), and noted that current available mortgage rates are near historic lows:
- The lowest 5-year variable rate available in the last 10 years was 1.69% in 2017 – today, the best 5-year variable rate is 1.95%.
- The lowest 5-year fixed rate available in the last 10 years was 2.09% in 2016 – today, the best 5-year fixed rate is 2.14%.
However, lower prices and a lower mortgage rate aren’t all you need to consider:
- Get pre-approved for your mortgage and lock it down for up to four months
- Be razor sharp on your personal finances, secure your downpayment even if it means negotiations with the Bank of Mom and Dad.
- If your employment is expected to be stable you should have more confidence in being ready to go.
You can be sure there will be some who think the pandemic will persist and prices go even lower yet there will be others who think we are in the early stages of an economic recovery and will want to act now. The ultimate decision on whether this is the time to buy should always come back to affordability and the lifestyle you can sustain.
Indeed, Canada’s housing agency warns home prices could fall up to 18% over the next year in the face of COVID-19. Canada Housing and Mortgage Corporation CEO Evan Siddall says his agency is looking at ways to avoid exposing young people and taxpayers to losses from falling home values.
Buying a home is a risk but it can be a calculated risk once you determine all the influencing factors that pertain to your household.
And as I've said so often, regardless of the deal you still need to be prepared to be house poor. That is just part of the deal.