I was working with a young man recently who decided after seeing only a few houses that he would rent for another year. I asked him why he changed his mind and he told me that he thought RIM was in trouble and the price of real estate would likely fall within the year.
Wishful thinking. There are better reasons not to buy.
But as to that argument, we all know how strong the local economy is and the local economy isn’t RIM. There are hundreds of high-tech firms, two universities, two large insurance companies and an assemblage of employers keeping our local economy and housing market strong.
Owning the roof over your head should still be a goal for most Canadians as paying rent is like paying someone else’s mortgage.
While a growing number of real estate watchers and some economists are forecasting property prices will decline, the Bank of Canada gave its clearest signal so far this week that interest rates are set to rise. On a national level house prices may fall a little, but here in Waterloo Region I predict steady but slow growth.
Given such scenarios written in national newspapers, some first-time buyers may be tempted to hold off on what’s likely to be one of the biggest purchases of their lives.
That would be a mistake.
Get into the market is my advice. Even if you have to lower your expectations about what you can afford it’s better, especially if you are young, to put your money into buying rather than renting.
About two-thirds of Canadians currently own their own homes, with men more likely to be homeowners than women at 69% compared with 63%, according to a recent BMO survey. Those least likely to have taken the plunge were in the 18 to 34-age bracket, where only a third were homeowners.
If you have the opportunity to get into the market, it’s a great time to buy. I would say that the Kitchener Waterloo real estate market is balanced at this time. Prices have leveled off – instead of increasing at about 6% per year they are increasing at about 1%.
According to the Canadian Mortgage Housing Corp. the average monthly rent for a two-bedroom place was $864 in April, up from $848 in April last year.
That price rises to $1,181 in Vancouver and $1,124 in Toronto, Canada’s costliest cities.
With interest rates currently so low, on the purchase of an average $300,000 property, mortgage payments are unlikely to be much higher than rental payments.
A fixed-rate mortgage of 5% and an amortization period of 30 years would put monthly mortgage payments at $1,521.02. Adding in property taxes monthly payments are likely to be about $1,771.02, according to figures supplied by BMO.
If a monthly rental of $1,200 increases by about 5% a year, after eight years your mortgage payments will be less than your rent, BMO says.
The only real argument in favor or renting over buying is if you are highly mobile and plan to be in a location for less than five years. Then renting is probably the best option.