Have you been waiting to buy a home in the GTA, hoping for prices to come down? That decision might be costing you more than you think.
But first: there are lots of good reasons to wait to buy. For example:
- You need time to save for a bigger downpayment – it’s not easy to save for a downpayment (Related: Downpayment strategies for first-time Buyers)
- Your lifestyle situation is in flux – For example: you’re getting married, trying to get pregnant, you don’t know how long you want to live in Toronto, you’re seriously-dating-but-not-at-the-buying-a-house-together stage.
- Your career path and future earning potential will impact what you buy – In other words: you expect to be making a lot more money soon and want to wait to buy a bigger/better house when that happens.
- Conditions in the real estate market: interest rates are high, there’s no inventory of homes you like for sale, prices are declining, etc.
There are also people who can buy a home who choose to wait, hoping for prices to decrease. The problem with that strategy? Most of those people wait too long; prices continue to go up and they end up not being able to afford anything at all.
We pulled up some stats to help illustrate the cost of waiting to buy.
To make the comparison fair, we used the average price of a home in Toronto, the posted interest rate and assumed the buyer had a 20% downpayment and chose a 25-year mortgage amortization.
- Prices went up between 2018 and 2020. In fact, it cost $142,343 more to buy the average house in 2020 vs 2018.
- Interest rates went up too – the posted rate was 0.20% higher in 2020 than in 2018.
So how did the TOTAL COST of the home, including downpayment, principal mortgage payments and interest over the 25-year mortgage, change over 3 years?
The Cost of Waiting to Buy
Ouch. The Buyer who could have bought in 2018 but waited until 2020?
It cost an extra $252,473 to buy and own the ‘average’ home.
Now I’m not suggesting that everybody should buy a house right now – there are lots of legitimate reasons to wait. But waiting to buy because you’re hoping prices come down may cost you a lot more than you expected. And when interest rates go up from these all-time lows? That will only make waiting to buy even more expensive.