Is now a good time to buy?
It's a question that we hear in the real estate industry all the time. The answer is simple: It's the right time to buy when
(1) you want to, (2) you have a long-term view, and (3) you can afford to.
Buying patterns are dictated by a multitude of factors, but they mostly have to do with changes in life circumstance:
moving out of your parents' house, getting married, having a baby, getting transferred for work, and becoming an
empty nester are all strong incentives for changing your living situation. Sprinkled into this decision are thoughts on
what is going to happen to the real estate market.
But what is going to happen to the real estate market?
Take this headline from the Globe and Mail: 'Housing Market has Cracks'. The article, which points to a Canadian
housing market bubble, quotes economist David Rosenberg, who correctly forecasted the US housing crisis, who
says the Canadian housing market is 'overvalued by 15-35%' and predicts that the market is 'on the verge of
collapse'. It's a common theme in the news today. Except the article was written in 2009, right before the housing
market rose an additional 15%, in spite of its advice to 'brace yourself for a rough 2010'.
So it's hard to predict where the housing market is going to go, especially in the short-term. In the long-term, real
estate has been shown to appreciate at an average of 6-7% annually. Given that principle residences offer investors
the single biggest loophole in the tax code - capital gains on principle residences are tax-free - similar investments
would need to offer an historical return of 10+% per annum to compete.
But what if prices do fall in the short-run?
You may feel like you've made a mistake as prices begin to fall, but so long as you can afford the payments and you
do not move, it doesn't really matter. The only times that real estate prices matter are the day you buy and the day you
sell. What happens to the market in between is effectively irrelevant. This is why it's important to buy a home that you
can both afford and be happy with in the medium- to long-term. If the market turns negative, but you still like and can
still afford to live in your house, there's no need to sell at a loss. Conversely, if the market moves up, you're
participating in its gains.
Like any investment, however, you need a long-term view. In the short-run, fluctuations in the market and transaction
costs can eat up any gains that you expect to make. So go ahead. Jump in. But only if you (1) want to, (2) have a long-
term view, and (3) can afford
If you would like to learn more, please feel free to contact me at the email address or phone number above.