Home ownership is on the minds of many Canadians. With mortgage rates at historic lows and changes forthcoming to mortgage qualification rules as well as the expected impact of harmonized sales tax to new home purchases in Ontario and B.C., many folks are tripping over each other to buy their dream home.
I am often asked: “Is this the right time to buy a house?” And my response is always the same, “the right time is when it’s right for you.” It’s a rather tongue-in-cheek response, but my point is that if you plan to live in the house that you buy, your personal lifestyle should justify buying a home.
Perhaps you recently got married or just had a baby and need more space or you are in a relatively steady and secure job that you expect to keep for a few years. If you believe that you can commit to a home for at least five to ten years, then it may be the right time.
Trying to time the real estate market or choose the perfect location in hopes of a future windfall are considerations that are not as important compared to your life stage. In fact, we may not quite get the windfall that we expect when we sell our house. The magazine article factually demonstrates how real estate investments often significantly lag behind stock markets over the long-term.
Nevertheless, Canadians are avid homeowners. According to a 2008 Statistics Canada report, more than two-thirds of Canadians owned their place of residence. Renting is perceived as “throwing away” money, but the reality is that we often don’t compare the total cost of renting versus buying – we just look at the monthly mortgage payment and the monthly rent.
So keeping in mind that a home is not an investment, consider these three recommendations before buying a home:
1. Take your time! Build up some substantial savings, perhaps holding your investments in an RRSP or TFSA that can be drawn later to use towards buying a home. A higher down payment will significantly reduce the total mortgage interest and mortgage loan insurance component – especially at the 20% down payment level.
2. Do a total-cost comparison of renting versus buying. As part of their series on step-by-step home buying, Canadian Mortgage and Housing Corporation (CMHC) has a useful list of costs that may apply to you with a new home purchase. These include property tax, maintenance, land transfer and appraisal costs. Also, getsmarteraboutmoney.ca has an excellent rent versus buy calculator that allows you to experiment with different scenarios.
3. Commit for at least five to ten years. If you cannot, renting may be a better choice – especially if you have a mobile lifestyle and prefer to be non-committal. If you’re a smart investor, you can invest the difference and potentially yield better returns than in real estate.
If we can help empower you to make better decisions with your major purchases, you may be interested in our SPEND workshop. Or if you’d like to become a wiser investor, check out our INVEST workshop. Have a look at the workshops that we offer!