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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.
For more on our thoughts on the Toronto real estate market, check out our earlier blogs: Is the Sky Falling? Chicken Little and Real Estate Predictions and Canada vs the US.
Yes, the time is running out but not for the buyers but for the sellers – and I really suggest you as a realtor to educated your potential seller that they need to be reasonable with the prices in order to be able to exit the collapsing RE market with the good profit not with the loss. At least it proved to be true in Richmond, BC where I live. My realtor had been watching the market for years until he signaled me that it is a time to sell. I am so thankful to him as the market for townhouses was only going down since then – I sold in July 2011 last year and now happily renting the better place than I had in a better location (my lifestyle has def. improved and I also did not have to pay a property tax that has increased in our municipality), having capitalized my gains already.
Regardless that many people want their property value to increase or at least to stay at the same level, the current valuations are detached from the incomes and are not sustainable – so no much work for the realtors and construction industry people in the future, so this is in their own interests if the prices go down and market starts to be active again.
“balance your lifestyle needs with the current affordability with the uncertainty of the future”
what? should we crown you the next omaha of nebraska? such insightful words with absolutely nothing to contribute that might help your clients. What is the current (un)affordability? How uncertain is the future? At least throw in some metrics. The affordability (when adjusted for present value of money) is at an all time low. The house ownership ratio is at an all time high. The future is very uncertain with the mess in europe and all. I can dig up numbers but I am not the one writing this blog post or providing advice. Also if you want to see what happens to real estate prices and how they can only soften to 1 to 3% going into the future might I suggest that you look at San Fransisco, Chicago, LA, Seattle etc and the property prices there did not just stagnate but actually crashed. People who thought they were priced out of the market in 2005/06 can easily buy back into the market but currently don’t want to and the house prices have yet to bottom after a severe correction.
Your townhouse might have doubled in price over the last 13 years. Your other investments should have more than doubled in that same time period. Regardless you, as a realtor, should know that the house price today is not an indication of what the prices might be in the future. The prices could be higher, much higher or they could be lower or much lower as well. Looking at the price appreciation in the last decade is like driving a car while only looking in your rear view mirror. If you don’t drive a car like that then why base your home purchasing decision on historical information from the last decade only?
You might want to check out://www.getwhatyouwant.ca/is-the-sky-falling-chicken-little-and-real-estate-market-predictions/ and https://www.getwhatyouwant.ca/canada-vs-united-states-housing-market/ for some metrics and more of our opinions…
Condo Chris says:
“Olga” and “What” = Renters for life. Enjoy