We’ve been meeting a lot of buyers lately who are confused: should they buy now in case prices continue to increase? Or should they wait to buy in case the doomsdayers are right and Toronto’s real estate market is a bubble that’s about to burst?
- Toronto has been experiencing steady price increases for the last decade. We know a number of people who’ve been waiting to buy for years, convinced that prices were about to drop. Well, prices haven’t dropped yet, and many of those people are now completely priced out of the market (we call these people “renters-for-life”). I always like to share the example of the people who sold me a townhouse 10 years ago – they were convinced that the market had peaked and sold me their townhouse for $315,000 (a record high for the complex). They decided to rent and wait for prices to drop. That townhouse? It now sells for almost $600,000. Ouch. They may have saved some money while renting, but in a twist of irony, they can’t afford to buy back the townhouse they once owned.
- If the Toronto real estate market does in fact slow down, prices may indeed drop. You may be able to afford houses and neighbourhoods that aren’t currently in your price range. Of course any slow down in the market would likely result from an increase in interest rates – so while the actual price of the house or condo may be lower, when you factor in the cost of borrowing, your carrying costs could be the same or higher.
- Trying to time the market is dangerous, and if it were easy, we’d all have bought Google and Apple stock on IPO day and sold our shares in RIM years ago. You don’t know when the top has been reached until it’s too late, and you won’t be able to predict the bottom either. Just ask our friends south of the border.
- Buying a house or condo is a lifestyle decision – you do after all, need a roof over your head. There’s no easy answer to the rent vs buy question – it all depends on your personal financial situation (your income, debts, how much you pay in rent, how you invest your money, etc.). We’d never recommend rushing into buying more house than you can afford or buying because you’re afraid of price increases. Buying a home is a big investment and you need to balance your lifestyle needs with the current affordability with the uncertainty of the future.