Is there ever a right time to Buy/Sell?
I’ve been getting some mixed reviews from both colleagues and clients over the past few months, when I have shared my personal and professional opinion on today’s CRAZY market.
According to real estate industry sources, the national average house price in Canada is expected to continue to rise this year and through 2009. Both the Canadian Real Estate Association (CREA) and Canada Mortgage and Housing Corporation (CMHC) have predicted that house prices will climb to new records in major markets all across the country.
Figuring out whether it is your time to jump in to the real estate market at this time is a difficult call. How you arrive at an answer to that question depends partly on where you’re starting from. If you’re starting out in your first home, it’s fairly straightforward. You calculate your carrying costs and the potential for return on your investment and then determine if that situation will improve if you wait. With today’s low interest rates, the cost of carrying a home is now very affordable. The low mortgage rates also provide you with an opportunity to pay down more of the principal in those critical early years of your loan. Paying even a quarter of a percent less interest in the early years of your mortgage could add up to a savings of many thousands of dollars over the life of your loan. Your price range will be the major factor in determining where you should be looking.
In most cases, a simple calculation will show you that you have a lot to lose by waiting. Not only would your carrying costs be higher if house prices or mortgage rates go up, you’d also lose any equity you could be earning as the value of your home increases beyond your original purchase price. These factors will usually outweigh any savings you might realize by entering the market later with a larger down payment. This is especially true when you consider you still have to pay rent on another location while you save for that down payment.
If you are on the other side of the equation and you’re one of those fortunate people who already owns a home and you need to decide if it’s a good time to sell it and buy another. You’ve got both ends of the transaction to consider, so your primary concern isn’t just the price of the home you want to buy. It’s between the sale prices of the two properties that’s important. If you’re downsizing and want to come away with a cash surplus, it’s to your advantage to do so in a market where homes are commanding top dollar. Even if you’re upsizing, it would still be to your benefit to act now and take advantage of the property appreciation that’s to come, and do it before the gap between the two properties widens.
