Is now a good time buy a home in Ontario?

Why waiting could cost you more than you think.

Your home is the biggest asset you are likely to ever purchase as a Canadian.  Think about it you are going to spend in some cases, half a million or even a million dollars on a place to live.   That is such a huge number and can be very overwhelming to some.  This will also likely be the largest debt you ever take on, and it can feel like a noose around your neck, especially if debt paralyzes you.   Now don’t let the inner “shitty committee” talk you out of it before we even get started.   The reality is, if you talk to anyone who has owned a home for the past 20 years, and made reasonable financial decisions, they have faired VERY well!  In fact, almost 35% of homeowners have no mortgage at all.    Most of them did not start out mortgage free they got there over time, a very long time.   The one thing that makes those homeowners stand out, is not that they were more savvy, affluent, wealthy, or lucky than others, they did one thing, they made a decision.  That decision was to BUY a home. 

“Im just waiting for rates to drop”, this is one of the most cringe worthy things I hear daily from would be first time home buyers.  This is probably the most expensive phrase I hear in Real Estate.  The reality is you are not timing the market; you are looking to buy a home to live in it for the next 5-20 years!   This is not a stock that you are looking to trade as soon as the market changes.  Over time, when rates go down, house prices will typically go up.  Why is that?  When money is cheap, we look to spend it.  When rates go up, prices will typically go down, because higher debt payments for anyone is no bueno!  I know none of us wants to go back to 2021, but bear with me for a second, when we saw the lowest points for interest rates you could get a 5 year fixed mortgage for under 2%, a variable rate could be 1% at the lowest point.   That is practically free money!   Now when everyone was lining up for low interest rates, we saw prices surge higher than an 80-year-olds heart rate at a strip club.   This caused people to make rash decisions, like making an offer on a property that was over asking, with no condition of financing, or a home inspection.  YIKES!   That is scary, purchasing the biggest thing you will every buy in your life, with out a professional going through it.   Would you buy your first car with out a test drive, or at least a safety certificate, I think not.   Now what happened 2 years later, interest rates were in the 7% range, and prices started dropping.  When interest rates are dropping you can get a better deal, and also purchase with conditions, so you don’t have the stress of making decision that you may later regret.  The important part here is that everything is cyclical, but over the long term, the base line increases.   The people who bought the house in 2021, saw their house price go up, and than go down, but their net worth has risen significantly!  This is because the mortgage was principal was getting hammered with the low rate, AND the house still netted out at a higher value than 5 years previous.   What does that mean?  Increase in wealth, and on the way to having a huge net worth in the next 5-10 years. 

“Stress test reality” The stress test originally came out in 2018, and the purpose was to protect homeowners from rising interest rates.  This made it more difficult for people to qualify for the mortgage they wanted as they had to qualify at a rate that was 2 percentage points higher than what they were paying.   With rates decreasing almost 3% over the past year, we are back in a position where affordability is coming back.   Now if the government decides to treat people like adults and allow them to purchase what they can actually afford, (remove the stress test), watch out, as demand will surge, and prices will reflect that with major increases.  On the flip side we live in a “pen stroke” economy where the government can make a decision, change a policy that either positively or negatively affects the mortgage, and housing market.   IF it is a restriction in policy, you may find your self out of the market you were once able to get into.  Alternatively, we could see policy change in the easing of the money supply, and that would bring you back to rising price environment, and therefore paying more for the home, because if more people can buy something, that means demand goes up, which you guessed it prices go up!  Long story short, stop stressing about the stress test. 

Pre approval costs you nothing but your time.  Even if you’re thinking well, I might not be able to purchase a house right now, please, please, please... with sugar on top, get preapproved!  This is one of the most exciting and knowledgeable experiences you can go through.  Getting preapproved, through a professional mortgage agent or broker, gives you a complete home buying strategy and game plan.  You might not be as bad as you think, or you might be, but you can’t fix something don’t know about, so get the info.  Its free!

What is your budget, how much is an actual mortgage payment, these are things you don’t know until you get preapproved.   What is the portion of your income that can be used for the qualification of the mortgage, how much down payment do you REALLY need, in some cases it could be as low as 5%, another case it could be 20%.   Do you need help from your parents, can you get a gift, do you have to pay it back?   These are all questions a preapproval will answer. 

How good or bad is your credit?  Have you ever seen your credit report before, what is your utilization, did you know its better to make the minimum payment every month than to miss a payment and pay off the entire balance the next month.  A great mortgage broker will tell you how these things work.   They can even help you boost your credit if it is in the cellar.  If you have something on your credit report that is from some time ago, or maybe you cosigned for your crazy ex boyfriend on a car loan and forgot about it, all these things can be fixed however they may take time, and money!  Knowing ahead of time will make the home buying experience way more enjoyable.  When you have a plan you can always make some changes, as it is much easier to change the plan than it is to create it. 

What about a budget, unless you plan on living with mom and dad for the next 25 years, you should look and see how much it costs!   You may be surprised, rents and mortgage payments are coming back into line right now, so if you have some savings, you may be able to save your self from getting into the rental trap. 

“I will never own a home”, is one of the most disheartening things I hear from young adults, today.   BULL SHIT.  Yes, it is hard, and yes affordability is tougher than it was 20 years ago, but millennials today are more resilient than ever, they will get multiple jobs, side hustles and make things work.  So do not take no for an answer until you give someone the opportunity to say yes.

Please run your numbers today, not your guesses for tomorrow. 

Houses have proven to be and will continue to be the number one wealth builder for many Canadians, it is not just an investment, it is a home where you live, raise a family, make memories and shape your life.  The home has utility and making the decision to buy with a long-term lens on your future, will certainly have huge benefits for you bank account and retirement.

Just ask your grandparents if they wish they didn’t buy a house, Ill bet the bank none of them will have any regret that they did.  

Brian Hogben