Is Now A Good Time To Buy A House?

by Mike Holman

It seems that doom and gloom is everywhere in the economic and real estate world.  US banks are falling like flies, US real estate is dropping like a rock – the only thing that is going up is foreclosures!  I was recently talking to a friend who is trying to sell a house and he mentioned that some of the feedback he’s been getting from potential buyers is that they are very worried about the economy tanking, real estate prices dropping etc etc.  While there is a lot of uncertainty with respect to housing (as there usually is whether we realize it or not) it occurred to me that if you have reasonably sound finances and are looking for a house then perhaps now might not be a bad time to buy.  While I can’t predict where house prices will go in the future, I do know that if you are a serious house buyer in Toronto right now – you will have less competition than you did 6 months ago which in theory should translate into a lower price.

Here are some points to consider if you are debating shopping for a house

  • How is your financial situation? If you only have a 5% down payment and 4.8% of that was borrowed from your parents then maybe now is not the time to buy.  Zero percent down payments are not the end of the world but they aren’t a good sign either.
  • Is your industry doing well? If you work for a car company or the Canadian branch of failed US bank then you might want to hold off for a bit.  On the other hand if you are a teacher or government worker then your job should be relatively safe.
  • Do you own a house now? When the market is doing well, it is almost a given that most people will buy a new house and then sell their old house.  Problem is that if the market tanks on you then you are left holding a rather large bag.  I’ve always been a fan of selling the current house first and then look for a new house.  Worst case scenario is you end up moving into an apartment or with relatives for a while – it’s better than owning two houses that you can’t afford and can’t sell!
  • Are real estate prices going to drop? I wish I knew the answer to that but one thing I can tell you is that real estate is very regionalized in Canada so just because prices are dropping in Calgary and Vancouver doesn’t mean that the Toronto market will drop the same way.
  • Will US-style real estate problems will start to appear here in Canada? Not a chance – I’m not saying that our real estate won’t go down but the lending standards in Canada were far more stringent than in the US which is why their real estate rose so high and it’s also why it’s crashing so hard.
  • Why do you want to move? If you are moving for reasons of convenience rather than necessity then you should consider delaying the move if it looks too risky.
  • What is the rush? This applies to any economic scenario – a lot of people take too little time when shopping for a house.  Slow down, figure out the market, learn what is out there.
  • What if my Canadian bank fails? It won’t – stop reading CNN and get back to the MLS listings!
  • Think about the buying vs renting equation.  Maybe renting is better for you at the moment.
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{ 28 comments… read them below or add one }

1 Mr. Cheap

I agree, I think now is a great time to buy a house if you want one and finances allow it. Like with your friend, if I was a buyer I’d really work the doom-and-gloom angle if I was negotiating to try to get the seller to give me a good price.

2 Four Pillars

I wrote this last week – since then I`ve been wondering if the market has turned completely into a buyer`s market which could mean some significant price drops over the next little while.

3 Al

The decreases in the housing market have been modest, and we should anticipate further price declines (inventory is building in most markets, interest rates on borrowing are rising, etc). We’re entering a recession and should expect a weaker job outlook and less opportunity for raises/promotions. I’d say now is not the time to buy unless your personal situation is solid.

4 moneygardener

Personally I believe that now is a horrible time to buy a house in Canada. Canada’s home prices are just begginning to decline, and they have a ways to go IMO. Canada always lags the U.S. The time to buy real estate in Canada if you care about getting good prices and having your home appreciate will likely be in about 1-2 years in my opinion.

5 Mr. Cheap

Al & MG: I definitely get where you’re coming from. The thing is, we’re not the only ones who have seen what’s happened in the US and what’s happening in Canada, sellers have too! I’d use this as a negotiating tool, with my offer I’d include the idea that the market is turning and we’re heading into a recession. The sellers are going to be as worried about missing an opportunity to sell as a buyer might be interested in waiting until things go lower (and you could even suggest to their agent that they make sure their clients are aware of this).

I wouldn’t run out and pay asking price right now, and I certainly wouldn’t be using sale prices from the last 5 years to determine what I’m willing to pay, but I think it’d be a great time to take advantage of the doom & gloom pessimism and put out some low-ball offers.

Things might not be as bad as everyone is saying, and you might get a good price from someone trying to dodge hard times that don’t arrive…

6 nobleea

One should factor in the fact that mortgage rates have been trending up (both fixed and the discount off variable) and will continue to do so if the credit market remains frozen or gets worse.

As for comments that CAD house prices are just beginning to decline, I can say that it is geography-specific.

Edmonton prices, for example, have already dropped over 20% from the peak. They may go down a bit further. Toronto hasn’t really started it’s decent. Vancouver has just started and has a loooong way to go.

7 Jerry Hung

I wouldn’t suggest buying a house now, as the whole economy is in an UNKNOWN status, you can see signs here and there, but not the big picture

With some downturn in house prices, it felt like how subprice started, and when people thought the worst was over, it dropped even more

Unless you are in great financial conditions, can secure a good rate for mortgage (5-yr fixed 4.99%, or P-0.75 Variable), and really loved the house, wait and see!

8 nobleea

TD has changed their variable rate to Prime PLUS 1%. I suspect the rest of the Big 5 banks will follow.

Their HELOCs have also changed to prime +1% i understand.

9 julie

Remember Warren Buffet’s quote “Be fearful when others are greedy and greedy when others are fearful… ” Everyone is scared right now… if you want a house and plan to own it for 5+ years, find a good area with good fundamentals in it’s local economy (job growth i.e. not in the auto industry like mentioned, population is increasing etc.), and venture out and strike a deal. There are people selling houses that have to sell… maybe they are relocating for a job or they are in a pinch financially or they are just following the panic. You just don’t know what deals you’ll find if you don’t look. And yes, maybe the prices will sag more in the next 12+ months (really quite likely…but my crystal ball is broken so I am not certain), so if you think you’ll need to sell in a few years then NO – do not buy a house right now. But I think the advice in the blog is good… slow down, make careful decisions based on your situation and the area you want to live in, but don’t generically decide not to buy right now just because of the bad headlines.

10 Squawkfox

Depends on the house. 😀

11 Four Pillars

I think I would be nervous buying a house right now – yes, it`s a better deal than 6 months ago but you could say the same thing about the stock market… 🙂

12 Mr. Cheap

I think its a great time to buy stock if you want some and finances allow it :-).

It’s becoming a better time to buy stock every day…

13 moneygardener

“Its becoming a better time to buy stock every day”

🙂 well put!

14 BoughtAHouse

Well today I’m closing on my house, funny that I come across this blog now. But I agree with Julie. I am in Waterloo and bought th 3+owner house for investment purposes, renting to students at Waterloo U .5 KM away. My fixed rate had I got it before Sept 30 08 when my broker wanted me to would have been 4.95, but because I waited I got it at 5.44. I’m not too worried because in the end the students pay the mortgage and I’ll be living rent free. As for the house negotiations, I totally played the doom and gloom and got $10,000 off the asking price of $230,000. This is great for me because local houses were actually selling for $226-$235k and because of the proximity to the universities I feel I’ve got a pretty good deal. Now as for the outlook, again unknown, but for my purposes on what I’m planning to do with the house and the location of it, as well as the huge corner lot and separate entrance, I know there will always be buyers and I know I should be able to make a profit. I will say one thing, part of my down payment is being paid with my RRSPs and those did take a significant hit. So if you do plan to buy a house soon, I would say take your money now and run if you’re going to plan on using the RRSPs.

Cheers to all

15 Four Pillars

Bought – congrats on the purchase!

16 nj
17 Jordan Clark

I’ve been patiently waiting for a “tipping point” in the Vancouver market to change market sentiment to start seeing prices return to sane levels. I believe it was starting on its own from the exhaustion of first time buyer’s hitting the absolute affordability ceiling and over bidding & building. Now with this global financial crisis hitting at the perfect time I think this housing market is going to crumble. Speculators are going to be in serious trouble and listings will go up dramatically as everyone rushes for the door. With the speed of this market correction I might not have to wait 1-2 years as I was planning, maybe we’ll be buying in Q1 of 2009.

18 Ashley

I was wondering if someone would mind giving me some advice.

I am goig to be ready to buy my first home soon.( 3 months or so) I would like to move as soon as possbile from where I am renting, but it’s not mandatory that I do so right away.

I know that some of you are saying wait as the house prices drop, but isn’t interest rates known to go up as house prices drop.

I was thinking that while the BoC was cutting rates and prices on houses were lower than they have bneen for a bit in the Durham region where I am planning to move, I thought now may be a good time.

So again to summarize, I would like to buy a home, I work in a stable market, I am looking to live there for at least 3 years and would like to know if I should buy? Will rates go up as prices go down or am I best to wait?

Your advise is most appreciated

19 Jordan Clark

I don’t think there is a direct cause and effect that when housing prices go down interest rates have to go up, it could happen. But no one can predict where interest rates will go. If the country continues down the road to recession the BoC can try and use interest rate cuts to bring it back.

I don’t know the Durham region, but if the area is seeing price reductions because prices are hitting an affordability limit of people’s income (like Vancouver) then an interest rate hike will just increase downward pressure on prices.

I’ve heard you should plan to buy only if you will live there for 5 or more years. I would do a rent vs. buy comparison and see which puts you further ahead.

If you really value owning instead of renting, you are comfortable with the current prices & interest rates then go a head and buy.

Just don’t over extend yourself and don’t buy out of fear.

20 nobleea

I think there is a cause and effect relationship between interest rates and house prices. But you have it mixed up. All else being equal, as interest rates go up, home prices will go down. This comes down to affordability. Increasing interest rates will increase the monthly payment that a new buyer will pay. Unless there is decent wage inflation to match the interest rate increase, then the house selling price will have to drop to keep affordability the same.

That is assuming a rational, well priced housing market of course.

21 Jordan Clark

Oh and I forgot to add, have a real down payment saved of at least 20% and try not to go over a 25 year amortization.

22 Mr. Cheap

Nobleea: That’s my understanding too.

23 Four Pillars

I agree with Nobleea about the interest rates and house prices as well.

To be honest I would not buy a house right now because the risk that it could go down significantly is fairly high. I may do a post on this but I think the fact that the housing prices in Toronto have started to go down for the first time in 10-15 years? is pretty significant. With all the gains in real estate over the last 10+ years, a 30% drop is not unreasonable.

24 Ashley

So even if I buy a home now and stay there for 5 years the value of the home wil be lower than what I bought it for?

Thank you all for your help:)

25 Four Pillars

Ashley – nobody (not even us) know where real estate prices will go. All I’m saying is that there is a definite possibility that you could lose money on the house.

26 PS

I am thinking to buy the first time. It is a penthouse with 2 storeys & a deck on the top. It is in entertainment district in downtown Toronto. I am paying over $ 800000 for it. It is my first purchase ; I have been saving for it. But still, I am really nervous of making the purchase. I am self employed. I am sorta counting on selling it when I retire. Location is perfect. Still worried if U should buy now. 30 % slide , is it really possible ? My sis lives in US ; she told me that if you live in a prestigious neighbourhood in US, the price did not really drop any. Because rich folks always have more.

27 tom

I’m planning to buy my first house in kingston, Ontario. Its a townhouse around 250k. Getting a mortgage from TD at 3% fixed – 5 years and downpayment of 20%.
What do people suggest, is it a good decision to buy this house, at this time?

28 bramptonhomes101

We are heading into a depression “history repeats it self”

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