Choosing where we live and the way that we pay for housing (renting vs. buying) is one of the most important decisions that we make in our lives. These decisions tend to be made more on the basis of impulse or social pressure than on sound logic or evidence. There are times when it makes a lot of sense to buy a home. There are other times when renting might be a far better option.
With Toronto housing prices faltering recently, and interest rates on the rise, it might seem like a good time to buy real estate. Unfortunately, basing the decision to purchase a home on the perception of over or undervaluation of the real estate market, or an impending rise in interest rates, is a losing game.
Just like the stock market, it is impossible to successfully time the real estate market with any consistency. Keep in mind that the current valuation of the real estate market does not matter to you if your intention is to buy a home that you will live in for the long-term. If you are considering the purchase of a home that you don’t see yourselves living in for the long-term, you may want to revisit the decision.
Buying a “starter home” as a first-time home buyer will often seem a sensible idea. Buy a smaller home now, and use the equity in that home to purchase a larger or more desirable one later. This might work out really well if real estate prices keep going up, but it can go the other way very quickly if prices begin to fall. Even if they do rise, they would have to go up enough to cover the significant transaction costs associated with selling a home.
A home purchase with short-term intentions will trigger large real estate, tax and legal costs, and it exposes you to the price risk of the real estate market. If the price of the house falls, you might end up taking a loss, or feeling like you’re stuck with the home.
The real estate boom in Toronto comes down to a multitude of factors, many of which stem from demographics and a healthy economic picture, that leading economists from BMO sought to shed light on in a recent report.
While record low borrowing costs are the most obvious factor behind lofty home prices, the fact that the surge in prices is so heavily concentrated in just two cities means that there are other important factors at play as well.
Also, a lot of young couples find it more convenient and lucrative to live in condos than in a regular home setup. A lot of people too find it more practical to rent and save more than force themselves to buy a home right away.
It’s a good time to buy though in Toronto – at least for this year. Prices for detached homes have been mostly flat recently, reflecting the cooler housing market of the last few months. Month over month, detached prices in the GTA averaged $930,500, down 0.59 per cent since September.
Toronto’s detached housing inventory is currently experiencing a huge surplus, and some analysts think that prices are set to drop significantly in response. Your dream of owning a house can be a reality if you act today.