Is now a good time to buy a house?
Home prices are dropping all across Canada. High market areas are seeing little dips, lower market areas are seeing consistent drops in price as the months’ tick on. Mortgage interest rates are very low as well, but is now a good time to buy a house? Should you wait until we’re at the bottom of the dip? Should you wait until mortgage lenders get a little less strict? I think now is the perfect time to buy, and here is why.
You never know where the bottom is
This is the same problem you have while waiting to buy a stock at its lowest point – you never know when the lowest point will be. If you wait until you’re sure you saw the bottom, it is too late, the prices have started to come back up. Home prices are the same – and because they’re listed by real people guessing at what the market is going to do, they’ll be just as influenced by the market re-surging as anyone else. If you’ve been watching home prices in your city for a while, I’m sure you’ve noticed that as the summer ended the prices started to go down. If you haven’t been, ask a local realtor or two what the home prices have been doing and you’ll find out right quick. Even if the market is not at the bottom yet, as long as you’re planning on keeping the house for a couple of years, you are almost guaranteed to have home prices be higher when you get around to selling.
Interest rates are low
Interest Rates are very, very low right now. 5 year fixed rates are as low as they have been over the last decade. Chances are good that they’ll go back up over the next couple of years as historically the prices will rise and fall. If you wait until the house prices drop even further, you risk losing out on the low-interest rates. Unfortunately, banks are not able to offer lower rates once the “rules” have changed. It is like a sale at a retail store, except no one knows how long the sale is going on for or if it will ever come back. Because interest rates are low, even if you purchase a more expensive home now, you’ll end up saving more money in the long run because of the low-interest costs.
Do the math – once you have figured out your home purchase price max – run it through a mortgage calculator to figure out how much interest you’ll pay at 3.09% (current lowest 5-year rate) over 5 years. Then reduce that purchase price by 10% and do it at 4.5 or 5% and see what the total difference is. Is it worth waiting to see if you can get the home for cheaper if it means a higher interest rate? Usually not.
Build equity
“Building equity” is one of those phrases like “team synergy” that seems to just be thrown around, and no one knows what it actually means anymore. What is basically amounts to is that for every year that you are paying off a mortgage, you are putting money back into your own pocket assuming you can eventually sell your home for as much or more than what you currently owe on the house. If you sell it for less, well, then it will either eat into that “equity” that you have in the home, or you will be “underwater” – where you owe more on the house than what you sold it for.
See, you pay interest on a mortgage, and even at low-interest rates it is quite a bit of interest. However, for every year that you pay down the mortgage, you pay a little of the principal amount down, meaning that the next year you pay a little less interest. For the house that we bought, for example, we actually will be paying more money in interest than makes it to the principle for the first 2 years. The 3rd year is about even, but then it starts to drastically drop. If we can eventually resell the house for as much or more than what we paid for it, we can then pay off the bank for the rest of the mortgage, and then keep the rest. Delaying the beginning of this process can be good – if you are taking all the extra money you are not putting towards a mortgage into a savings or investment account. If you are not doing that, then consider purchasing a home as soon as you can afford it.
Have you bought a home yet? Why or why not? Do you think now is the right time to buy?
Comments
With home values and interest rates so low, you almost can’t miss. There is still a fair amount of housing inventory and you can negotiate a great deal. Now is a great time to buy.
I’m looking at buying right now, but you’re so right about some of the catch phrases! I’m working on my team synergy as we speak. 🙂
I’ve commented before on this blog that my wife and I bought our first home in February of this year. we really couldn’t be happier!
My biggest bit of advice: Have as large of a down payment as you can! If you can possily beg, borrow or steal it, try to have 20% of your purchase price in order to avoid paying out a few thousand (over the life of your mortgage) on CMHC insurance.
Mind you, this is much easier in a market with lower prices like small town Nova Scotia. I doubt a first-time buyer in Vancouver will be able to save 20% of a house price there!
I agree, but with hubby being REALLY risk averse and not wanting to take on debt at all, and with me being almost 64, I’ve pretty much decided that I will have to miss out on this opportunity unless I can interest my grown children in being my partners.
Its a great time to buy a house, thats why we currently have two! haha
Would you also make the same conclusion if say mortgage rates were not an issue? Say, if one could buy a house outright.
Yes this is right time to buy house because rate of interest is too low. If you buy your house right now it would provide you some future benefits when the property rate would be high your house rate would also high and give you good rate of interest.
This is the wrong time to buy a house because when interest rates spike, housing will drop significantly. Home prices are already too high in canada, they are starting to drop with interest rates super low, and people in canada are in debt to their eyeballs. The housing market is being artificially propped up by low interest rates and the bubble will burst when rates go up.
This post is really informative. Now this is a good time for investment you.
If you want to purchase a new house, you can buy as the rate of interest are very low. Thanks for sharing this nice post. This post will definitely help the home buyers.
Supply and demand good way for determining the price of houses, as long as the demand is by by individuals or families that are actually going to live in the house (Or by people who wants to buy houses for rent).
It doesn’t matter cost are less or high, if you have enough money then you should invest in the land which is always a beneficial decision and always return good value. It’s good if you plan to invest in the property, always a win win situation for you.
When would the interest rate go up enough to drive down the housing price and/or bubble burst?