Good time to buy House (First time Buyer)?

[jigsaw-123]

Hi Guys,

I am really really confused if I should get in to the real estate at this point. I am in GTA and would like to buy house in GTA but with the market nearly at the highest peak and US recession as well as huge manufacturing job losses in Ontario, do you think I should wait for another year or so?

I am not in the great hurry of buying but it's high time and I think I can have appx 100K of Down Payment and looking at around 300K property.

Please let me know your thoughts on this, thanks.

[Caillo]

Is this a trick question?

[playmate]

IMO the best time to buy a house is when YOU are ready to.

Real Estate markets and the economy are always going to be up and down and going though different stages/cycles and stuff.

You can always keep waiting and waiting, but will you ever know when the EXACT best time to buy is? Probably not.

[grant]

A friend was offered the chance to purchase the apartment he is renting in downtown toronto. After running the numbers it turned out the purchase price would cost him $5xx/mo ABOVE his current rent for mortgage interest, opportunity cost, strata fees, and taxes. He would need capital appreciation of over 2.5%/yr to break even.

Personally i don't expect that kind of appreciation over the next ~5 years in any north american market, so I told him it doesn't make financial sense to me.

However buying a home is much more than a financial decision so it's up to you what you want to do... but nothing is stopping you from crunching the numbers to decide if it's economical or not to buy.

[speeeeee]

Hi Guys,

I am really really confused if I should get in to the real estate at this point. I am in GTA and would like to buy house in GTA but with the market nearly at the highest peak and US recession as well as huge manufacturing job losses in Ontario, do you think I should wait for another year or so?

I am not in the great hurry of buying but it's high time and I think I can have appx 100K of Down Payment and looking at around 300K property.

Please let me know your thoughts on this, thanks.

you can buy much for 300k in the gta now a days .. maybe a older small town or semi.... i want to buy a home now too but have trouble picking the location....

[jigsaw-123]

IMO the best time to buy a house is when YOU are ready to.

Real Estate markets and the economy are always going to be up and down and going though different stages/cycles and stuff.

You can always keep waiting and waiting, but will you ever know when the EXACT best time to buy is? Probably not.

Thanks for the response. I totally agree that there is never going to be a EXACT time when you know it's the right time. The confusion is coming from where the market and Economy stands in Ontario.

Many people are saying just get in the market while many are saying wait another 6-9 months.

[jigsaw-123]

you can buy much for 300k in the gta now a days .. maybe a older small town or semi.... i want to buy a home now too but have trouble picking the location....

In NW Brampton you can get good size Detached (5-7 years old, 1750 sq. ft.) for 300K, currently on mls.

If you don't mind, can you share what are the factors you are considering to decide that helps you make decision that this is right time to buy.

[jigsaw-123]

From Grant:

However buying a home is much more than a financial decision so it's up to you what you want to do... but nothing is stopping you from crunching the numbers to decide if it's economical or not to buy.[/QUOTE]


Very well said, I think this is one of the factor I will use to help me decide in favor of buying. Thanks.

[gomyone]

Thanks for the response. I totally agree that there is never going to be a EXACT time when you know it's the right time. The confusion is coming from where the market and Economy stands in Ontario.

Many people are saying just get in the market while many are saying wait another 6-9 months.

I don't understand this logic of waiting another 6-9 months - wait for what exactly? After 6-9 months are prices supposed to fall dramatically - will mortgage rates fall by more than 200 bps? Unlikely. Timing the real estate market, like every other asset class, is silly and for the most part, futile.

The bottom line is, after running the numbers, buy what you can reasonably afford and what makes sense for your lifestyle. Do not buy because you feel "you have to" or because "you want to join in on the real estate game".

[speeeeee]

In NW Brampton you can get good size Detached (5-7 years old, 1750 sq. ft.) for 300K, currently on mls.

If you don't mind, can you share what are the factors you are considering to decide that helps you make decision that this is right time to buy.


Not from what I see :
http://www.mls.ca/PropertyResults.aspx?Mode=0&Page=1&vs=Residential&ret=300&sts=0-0&beds=0-0&baths=0-0&bt=1&aid=3473&MapURL=%3fAreaID%3d3469&tte=1&tt=1%2c2&mp=275000-325000-0&mrt=0-0-4&trt=2&of=1&ps=10&o=A

Time to move to barrie/innisfill/keswick if you want a decent detached home under 300 k

[Bullseye]

Time to move to barrie/innisfill/keswick if you want a decent detached home under 300 k

There are lots of detached homes in Burlington for under $300k. Mostly older bungalows, but they are solid, and have big lots. There are a few newer detached 2 stories for around $300k as well, in the 1400 sq ft range.

Burlington is a 35-40 minute GO train ride to Union.

Edit: out of curiosity, I searched MLS for detached houses in Burlington between $250k-$325k, and got 46 for sale. Here's an almost brand new one for $310k;

http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fMode%3d0%26Page%3d1%26vs%3dResidentia l%26ret%3d300%26sts%3d0-0%26beds%3d0-0%26baths%3d0-0%26bt%3d1%26atsg%3d3%26aid%3d895%26MapURL%3d%253f AreaID%253d888%26mp%3d250000-325000-0%26mrt%3d0-0-4%26trt%3d2%26of%3d1%26ps%3d50%26o%3dA&Mode=0&PropertyID=6456526

[qster]

Not from what I see :
http://www.mls.ca/PropertyResults.aspx?Mode=0&Page=1&vs=Residential&ret=300&sts=0-0&beds=0-0&baths=0-0&bt=1&aid=3473&MapURL=%3fAreaID%3d3469&tte=1&tt=1%2c2&mp=275000-325000-0&mrt=0-0-4&trt=2&of=1&ps=10&o=A

Time to move to barrie/innisfill/keswick if you want a decent detached home under 300 k


First off, the listings you see on MLS.ca are usually 2-6 weeks old. Some of the listings may already have been sold and some listings that agents only see don't even make it to this public website.

Currently there are over 100+ homes with 3+ bedrooms on the market in Brampton for less than $300K.

Waiting another 6-9 months won't do you any good if you need a house.
Also, if you are expecting the interest rates to drop 100 bps, guess what??? the price of properties in the GTA will go up since more people will be able to afford a heft mortgage.

[DanielCarrera]

None of us can predict the market. What I suggest is that you calculate whether getting a house is worth it *FOR YOU*. In particular:

- Note down how much you are paying in rent.

- Figure out how much you would be paying on mortgage interest. For example, if you borrow $80,000 at 6% interest then every month you are paying:

$80,000 x 6% / 12 = $400

This should be a fair bit lower than your rent. If it isn't, then don't buy.

- Figure out how much property tax is, and add it to your monthly expense. For example, if property tax is $1,100 then add $1,100/12 = $91.67

New total: $491.67

Rent has to be noticeably more than this much, at a minimum, for a house to be worth it.

- Add a factor for house maintenance and repairs. This can be difficult to estimate. Start with 1.5% of the value of the house per year, as a first guess (this is really just a wild guess). For example, if the house costs $100K you would increase the average monthly out-going by:

$100K x 1.5% / 12 = $125

New total: $616.67

Thing is, you only do house maintenance once in a long while, but when you do it costs a lot of money.

- There is also an opportunity cost because your money is trapped in the house. But this is very hard to estimate. But you can at least keep in mind that if the numbers come very very close, you should opt for renting because at least you'll have your money free (liquid).

If what you pay in rent is noticeably more than the value you got ($616.67 in this example) then buying a house will save you real money, no matter how overpriced the house prices might be. On the other hand, if what you pay in rent is noticeably less than this value, then buying a house will make you over-all poorer no matter how great a deal it is.

This is the way I recommend you make the decision. It focuses on your particular situation, which is the right way to do it.

Hope that helps.

[ali1800]

There are lots of detached homes in Burlington for under $300k. Mostly older bungalows, but they are solid, and have big lots. There are a few newer detached 2 stories for around $300k as well, in the 1400 sq ft range.

Burlington is a 35-40 minute GO train ride to Union.

Edit: out of curiosity, I searched MLS for detached houses in Burlington between $250k-$325k, and got 46 for sale. Here's an almost brand new one for $310k;

http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fMode%3d0%26Page%3d1%26vs%3dResidentia l%26ret%3d300%26sts%3d0-0%26beds%3d0-0%26baths%3d0-0%26bt%3d1%26atsg%3d3%26aid%3d895%26MapURL%3d%253f AreaID%253d888%26mp%3d250000-325000-0%26mrt%3d0-0-4%26trt%3d2%26of%3d1%26ps%3d50%26o%3dA&Mode=0&PropertyID=6456526

$300K?? How about 589 square feet WITH parking! (Downtown core Toronto)

[apvm]

IMO, Real Estate will always go up due to inflation and other factors....look at the houses around Unionville main street, they were 80-120k during the 80's when they were built. Timing the up and down in between will be a tricky thing. If US is going into recession, Ontario will be hit, waiting 6-9 months to see if it impact GTA real estate market may not be bad since the market is slowing down compare to a few years ago and it is reasonable to say it won't jump 10-20% after 6-9 months but don't expect a price decrease of 10-20% either.

But if you are looking for a house now, the mentality of sellers maybe on your side due to the above factor.

[DanielCarrera]

IMO, Real Estate will always go up due to inflation and other factors....

Not true. Real estate can and does go down some times. House prices went down in the early 90's and house prices are going down in some regions of the USA and possibly the UK right now.

[pitz]

The best time to buy is when interest rates are *high*. As in, 10% high.

People who buy in low interest rate environments are suckers. Not only does their asset lose value, but their payments go up, when interest rates inevitably do end up rising back to normal.

The person who buys when rates are 10% probably will get a chance, in the future, to refinance into a lower-interest rate loan, and will have the benefit of some appreciation.

The person who buys when interest rates are 5% probably will never get a cheaper loan, and most likely won't see much appreciation.

[DanielCarrera]

The best time to buy is when interest rates are *high*. As in, 10% high.

All other things being equal I would agree. But if you are paying rent, buying a house *COULD* make sense depending on the cost of the house and how much you pay in rent. You could do the math assuming a mortgage of 10% regardless of what your actual mortgage is. If 10% interest on the mortgage plus other costs associated with owning a house are less than what you are paying currently in rent, then buying the house makes sense, regardless of what the current (actual) rate environment is.

That said, you make an important point to not get seduced by a low interest rate which is just going to increase later. The purchase must make sense with a high mortgage. And if you are not paying rent it would probably make sense to wait for interest rates to go up so you can buy your next house at a bargain.

[pitz]

All other things being equal I would agree. But if you are paying rent, buying a house *COULD* make sense depending on the cost of the house and how much you pay in rent. You could do the math assuming a mortgage of 10% regardless of what your actual mortgage is. If 10% interest on the


You're not quite understanding my comments; when rates are rising, houses (and other interest rate sensitive assets) will reprice. Its better to buy a cheap house at a high rate of interest, than an expensive house at a low rate of interest.

Why? Two-fold. First of all, as rates go up, many over-leveraged owners lose their homes to foreclosure, depressing the market even further than fundamentals alone would dictate. In a falling rate environment, foreclosures are rare because of rising equity.

Secondly, in a high rate environment, rates can go down. But in a low rate environment, the probability is much greater that rates will only go up.





mortgage plus other costs associated with owning a house are less than what you are paying currently in rent, then buying the house make sense, regardless of what the current (actual) rate environment is.


Maybe, maybe not, because interest rate related repricing can kill a lot of equity fairly quickly. Even if you have a long-term loan, without home equity, you might find it more difficult to obtain other types of credit, and if you do, it will be more expensive.



That said, you make an important point to not get seduced by a low interest rate which is just going to increase later. The purchase must make sense with a high mortgage. And if you are not paying rent it would probably make sense to wait for interest rates to go up so you can buy your next house at a bargain.

Even if you are paying rent, it can still make sense, although taxation does enter into play in the purchase versus rent decision as well.

[NuclearBlast]

The person who buys when interest rates are 5% probably will never get a cheaper loan, and most likely won't see much appreciation.
A lot of the RE topics here mention that real estate appreciates at or slightly above inflation levels. From what I've seen the last 4-5 years that's absolute bull so can someone show a reliable source? May be a 20-year graph cause like I said you couldn't convince me with a gun to my head that the last 4-5 years RE in GTA appreciated only at 2.5-3% per year?

[species5618w]

A lot of the RE topics here mention that real estate appreciates at or slightly above inflation levels. From what I've seen the last 4-5 years that's absolute bull so can someone show a reliable source? May be a 20-year graph cause like I said you couldn't convince me with a gun to my head that the last 4-5 years RE in GTA appreciated only at 2.5-3% per year?

Here is one.

http://www.torontohomes-for-sale.com/account/461083ac0e597a15/pages/2578_1.jpg

The problem is that the definition of GTA keeps on changing, so I am not sure how reliable it is.

[DanielCarrera]

A lot of the RE topics here mention that real estate appreciates at or slightly above inflation levels.

Not inflation, purchasing power. And that's actually very easy to prove. Assume for a moment that the cost of real estate increases faster than people's income. Then eventually the cost of the smallest house will be more than 100% of the income of 90% of the population. This is clearly not going to happen. People would stop buying houses long before this happens, and if nobody buys houses then either prices go down, or they grow slow enough for people's income to catch up. QED.

From what I've seen the last 4-5 years that's absolute bull so can someone show a reliable source?

*FIVE* years. Sure the prices can go up faster during certain periods, but eventually the laws of supply and demand will force a correction. There was a housing correction in the early 90's and prices went down. Calculate the compound return since 1990 and you'll see something closer to purchasing power.

You have to understand that *nothing* increases in price at a constant fixed rate. Think about it, why should it? Why should you expect the price of anything to grow at a perfectly constant rate? The prices of stocks, bonds and real estate do not grow at a fixed rate. They go up and down like a drunken lemur, but in the long term you can be confident that house prices will match purchasing power and that stocks will return more than bonds.

[DanielCarrera]

Here is one.

http://www.torontohomes-for-sale.com/account/461083ac0e597a15/pages/2578_1.jpg

The problem is that the definition of GTA keeps on changing, so I am not sure how reliable it is.

I'm confident that the definition of GTA is not a major factor because if it were you would see large "instant" drops in value corresponding to the days when the definition changed. Instead we see a smooth curve. I also bet that the price declines we see don't coincide with the days when the definition changed.

[NuclearBlast]

Not inflation, purchasing power. And that's actually very easy to prove. Assume for a moment that the cost of real estate increases faster than people's income. Then eventually the cost of the smallest house will be more than 100% of the income of 90% of the population. This is clearly not going to happen. People would stop buying houses long before this happens, and if nobody buys houses then either prices go down, or they grow slow enough for people's income to catch up. QED.
Ok, I see, although I'm pretty sure "inflation" was the term used. Maybe I'm mixing up some threads but anyway, how do we measure purchasing power?
Also the introduction of 35 and 40 year mortgages clearly shows that at this moment, RE prices are increasing faster than peoples income. (I'm not saying that's going to continue forever)

Calculate the compound return since 1990 and you'll see something closer to purchasing power.
Yeah, that was my original question - I can find the official inflation levels since 1990 from Stats Canada but how do I calculate this compound return on RE - any data or stats on that?

[elty]

If you draw a trend line by connecting all the bottoms then our support level will be at around 300,000. If we are at 375K, that means if a correction occurs in the next few years, it will be at around 20%.

Some US market is facing a much tougher situation:

http://bp0.blogger.com/_nSTO-vZpSgc/R7UaGqMbZqI/AAAAAAAACJU/B9AQoEQ_0ss/s1600-h/california-housing+prices.png

http://bp0.blogger.com/_nSTO-vZpSgc/R7UaGqMbZqI/AAAAAAAACJU/B9AQoEQ_0ss/s1600-h/california-housing+prices.png

In this case, it is already inflation adjusted so the trend line is simply the 0% line. It seems that there is a quite a bit to go for our neighbor.

[species5618w]

Not inflation, purchasing power. And that's actually very easy to prove. Assume for a moment that the cost of real estate increases faster than people's income. Then eventually the cost of the smallest house will be more than 100% of the income of 90% of the population. This is clearly not going to happen. People would stop buying houses long before this happens, and if nobody buys houses then either prices go down, or they grow slow enough for people's income to catch up. QED.



*FIVE* years. Sure the prices can go up faster during certain periods, but eventually the laws of supply and demand will force a correction. There was a housing correction in the early 90's and prices went down. Calculate the compound return since 1990 and you'll see something closer to purchasing power.

You have to understand that *nothing* increases in price at a constant fixed rate. Think about it, why should it? Why should you expect the price of anything to grow at a perfectly constant rate? The prices of stocks, bonds and real estate do not grow at a fixed rate. They go up and down like a drunken lemur, but in the long term you can be confident that house prices will match purchasing power and that stocks will return more than bonds.

Make sense. Is there a graph/data showing the purchase power in the GTA for the last several decades? I know it's increasing, but I am not sure at what rate.

[DanielCarrera]

Ok, I see, although I'm pretty sure "inflation" was the term used.

Maybe someone else said inflation. Why not.

Maybe I'm mixing up some threads but anyway, how do we measure purchasing power?

With a lot of difficulty. It's probably better to measure increase in wages. That should give same answer. The average wage should, in the long term, increase faster than inflation. A house mortgage takes up a certain portion of your wage. That portion has to be less than 100%, which means that house prices cannot increase faster than wages in the long run (but of course they can in the short term).

Also the introduction of 35 and 40 year mortgages clearly shows that at this moment, RE prices are increasing faster than peoples income. (I'm not saying that's going to continue forever)

Most people would agree that house prices have gone up fairly fast lately.

Yeah, that was my original question - I can find the official inflation levels since 1990 from Stats Canada but how do I calculate this compound return on RE - any data or stats on that?

Not sure.