It may be right time to take real estate plunge
Oh, for a crystal ball.
Statistics Canada has reported that the economy grew 0.1 per cent in June, the first monthly increase since July 2008. Home and auto sales are up, offsetting declines in manufacturing. But should such a tiny incremental upturn give potential homebuyers the confidence to jump back into the market?
At least one financial expert maintains that now is a good time to buy a new home. "People still need a place to live, we have historically low interest rates and mostly motivated sellers," says Margot Bai, author of Spend Smarter, Save Bigger (White Knight Press, 2006).
But she cautions buyers to be conservative. "Relying on low interest rates to get into a more expensive home is risky. Instead, choose a smaller, more affordable option. Wait until you have at least 10 per cent as a down payment, 20 per cent if possible."
As for buying up from an existing home, "now may not be best time if you're concerned about your job," she says. "Better to hold on and build equity so that a job loss won't become a financial crisis."
It's good to remember, she adds, that Canada is in a "reassuringly" different position from the United States. Because the GTA real estate market "never entered serious bubble territory, the correction was mild, and in some areas, house prices are returning to where they were," Bai says.
But prices haven't recovered consistently across the city, or outside of it, and builders have had to alter their marketing plans because of it.
"In this climate, it's not about giving more upgrades, and gimmicks like cars and trips, or hardwood floors and granite counters, but about giving the purchaser the best price, in a great location," he says. That meant builders had to "eat into their margins" since raw land costs haven't dropped, Golini says.
Regardless of the market, Golini urges buyers to do their research. "It's important to educate yourself about a builder's reputation and track record, how long they've been in business, the quality of their product, their successfully completed projects - make sure subdivisions aren't half abandoned. Sometimes things happen out of a developer's control, but if you see consistent construction delays, be cautious."
Tarion Warranty Corp. is a reliable organization aimed at making builders "more transparent and better communicators," he adds.
Make sure your finances are in order with a mortgage pre-approval. That lets you know just how much you can spend, and since the pre-approval is good for up to 120 days, a firm offer puts you in a strong negotiating position.
When it comes to mortgages, Bai has advice: "Take advantage of paying down debt early - money is worth more now than later, and making mortgage prepayments in the early years has huge value."
She recommends accelerated (twice-monthly) mortgage payments and short terms: "20-year, or even 15-year if you can, but definitely not past 25. The difference in payments between 15 and 25 years isn't as dramatic as you'd think, because most of the money you pay out is interest. And a 35-year or 40-year is just crazy because the principal paid is minuscule. I tell people if they can't afford to make payment on a 20-year mortgage, then they're probably buying a home they can't afford."
Bai also suggests a minimum 10 per cent down payment, even if it means begging or borrowing from family. If you put up less than that, you'll be paying thousands more for mortgage loan insurance.
Mostly, Bai says to be "reasonable with what you're trying to purchase. There's land transfer tax, property tax, condo fees and ongoing expenses, and the bigger and more expensive the house, the greater all that will be."
TheStar.com- Alex Newman