Wondering if you should buy a home right now? You’re not alone – it’s the #1 question we’ve been getting…and with 2020 being the most unpredictable year on record, it’s no surprise people aren’t sure what to do.
Truth: There’s no one right answer to this question. And it’s impossible to time the real estate market, especially during a pandemic.
In deciding whether to buy a home right now, you’ll need to carefully consider:
- The economy and market conditions
- Your personal financial situation
- Your lifestyle and needs
Below, we explore each factor in depth to help you decide: should I buy a home right now?
1. The Canadian Economy and the GTA Real Estate Market
These days, everybody’s crystal ball is broken – it’s been 100+ years since the last worldwide pandemic and today’s economists don’t know how a “pandemic recession” will unfold or which economic tools will lead to recovery. Economists are divided in their opinions about how our economy and the Toronto real estate market will fare in the months ahead.
If you’re thinking of buying a home in summer 2020, it’s important to seek out reliable economic information about what’s happening (or could happen) so you can decide how the economy factors into your plans.
In favour of a quick(er) economic recovery:
- Government Support: Canada has long been recognized for its strong social safety nets, and during the pandemic, our federal and provincial governments invested billions of dollars to help people and companies bridge the lockdown.
- The Long Lockdown: Toronto was one of the last big cities in the world to exit extreme lockdown measures. As I write this, we’re seeing the consequences of reopening an economy too early in the US – Ontario’s conservative approach is likely to pay off in lives saved and in economic recovery.
- Low Interest Rates: Interest rates are at all-time lows and are expected to remain low to help spur the economy forward. Variable interest rates have dropped from 2.8 to 2.15% since January – that’s a mortgage payment savings of $250 a month on an $850,000 home with a 10% downpayment.
- Healthcare: Our hospitals and public health institutions were able to handle the first wave of the coronavirus and are now more properly equipped with personal protective equipment (PPE) if there’s a second wave. While there’s still a lot we don’t know about the virus, our proven healthcare system, testing and contact tracing processes will go a long way to helping Canada recover.
- Consumer Confidence: In May 2020, the Toronto real estate market returned with a bang and has been extremely active ever since. Pent-up Buyer demand combined with first-timers and upgraders hoping to find a deal have helped drive sales volume and prices up. The real estate downturns of 2008 and 2017 were shorter-lived than predicted, as Sellers stayed firm on the prices they wanted and Buyers saw the opportunity to own a home in a world-class city.
- Immigration and Foreign Buyers: New immigrants and foreign Buyers play an important role in Toronto’s real estate market and we’re not sure when international borders will re-open or what their appetite will be for Canadian real estate.
- Job Losses: We likely haven’t felt the full impact of the pandemic on employment. While wage subsidies have helped keep people employed, as our economy continues to open, we will likely see additional job losses. Entirely new industries have been born in the last few months, so we’ve seen new jobs created too.
- Impact of Mortgage Deferrals: CMHC reports that 10% of their insured mortgagees deferred their mortgage payments when COVID hit, and many experts estimate that another 10% of non-CMHC and private mortgages were deferred. In Canada, mortgage deferrals don’t provide interest relief and they aren’t mortgage holidays – interest continues to accrue on the mortgage balance. When the deferral time period ends, homeowners simply go back to paying their regular mortgage with the extra payments/interest tacked on to the end of their mortgage. Thankfully, deferred payments don’t all come due as a big balloon payment at the end of the deferral like in the US and Canadian banks have been given the flexibility to extend deferrals beyond the initial 6-month period. But it’s still TBD how many homeowners will struggle in making those payments and be forced to sell their home or default on the mortgage.
2. Your Personal Financial Situation
Of course, you’ll need to factor your personal financial situation into your decision about whether to buy now:
- How secure is your employment? How much has the industry you work in been affected?
- How safe is your downpayment? Was it impacted by the swings in the stock market?
- What are your financial goals and how does buying a first or bigger property contribute? What’s your timeline?
- Can you get what you want without having to give up everything to afford it?
3. Your Lifestyle
Most people decide to buy a home for lifestyle reasons – and that’s usually the most important factor that determines whether to buy a home right now.
Life Transitions: Moving in with a partner, getting married, having a baby, needing a live-in nanny, babies turning into toddlers, kids turning into teenagers, or aging parents moving in – these life transitions often result in needing more space, less space or a different kind of space.
Job Changes: New jobs often come with new commutes that trigger a move and in 2020, changing working conditions (eg. permanent work-from-home) might mean you can now move to the neighbourhood of your dreams – even if it’s a 1.5-hour commute from your former office.
Financial Windfalls: Inheritances, job bonuses, promotions, big salary increases, insurance or divorce settlements, stock market windfalls and lottery wins – all are very valid lifestyle reasons to buy right now.
New Priorities and Hobbies: If there’s one thing most of us can agree on, it’s that the pandemic changed how we live and what we prioritize. In the last few months, we’ve worked with Buyers who:
- Want to move closer to their friends and family
- Got a dog (and now need a yard and a dog-friendly home)
- Took up hiking, cycling or running and want to be closer to trails and parks
- Upped their at-home cooking skills so much they want a bigger kitchen and space to entertain in
- Want to exit the city to the safety of smaller communities
- Missed the downtown vibe so much they want to move back to it
So what should you do? Should you buy a home right now?
Is summer 2020 the golden opportunity to finally buy a home in Toronto or make the upgrade you’ve been dreaming of? Low interest rates + less competition + prices that aren’t skytocketting might be the perfect formula if:
- Your personal financial situation is solid – you’ve got a good downpayment, secure employment and you won’t be scraping your last dollar to pay the mortgage.
- Your time horizon is longer-term (in other words, you’re not looking to buy now and sell it in a couple of years). Longer-term investment horizons, whether real estate or stocks, help weather shifting and uncertain markets.
- Your lifestyle calls for it – it’s the best reason to move
What are some of the riskiest real estate moves right now?
Our crystal ball is broken these days too, but in our opinion, some of the riskiest real estate strategies right now include:
- Buying an investment property to Airbnb – While Airbnb’s are operating again after the pandemic hiatus, it’s still an extremely uncertain game, between international travel restrictions, new condo board rules and the city of Toronto’s new short-term accommodation rules.
- Buying a property to flip Buying and selling in a short time period is risky in an uncertain market. Flipping properties has never been as easy as it looks on TV and these days, flippers need to factor in potential delays caused by possible future lockdowns and short-term market changes that impact market value and how long it takes to sell.
- Buying pre-construction – We’ve never been big fans of buying pre-construction condos and before the pandemic, we were seeing thousands of cancelled units and builder bankruptcies impacting Toronto home Buyers. There’s more risk than ever right now and it’s impossible to predict where prices will be when you finally close on that property 3-5 years from now.
Decisions, decisions! Want to talk through your options with an expert? Reach out to BREL!