Latest housing stats show listings are down, sales are down… but prices are up, only slightly…. and houses aren’t on the market as long. They are selling faster. Doesn’t sound like a bubble to me. More like a soft landing.
This is exactly what the govt had in mind when it changed mortgage rules a few months ago and made it tougher to qualify for a mortgage. It’s still too early to say if these changes are just right or went too far….. We’ll need another 6 months or so to see the full effect. Best guesses are that the housing market could slow by 5%. But I haven’t seen that happen… In the Greater Toronto area, we are still seeing multiple offers and sales go above asking price…. The interesting stat for me is the fewer number of sales… We’ll be watching that stat… fewer sales over an extended period of time will stop any price increases…
This also means we should expect interest rates to remain low. The Bank of Canada will be under less pressure to raise rates with a flat housing market. Throw in the U.S. Fed’s announcement last week that they were going to keep rates the same until 2014-15, and we have the perfect setting for low rates.
RECORD LOW INTEREST ARE STILL HERE…. WHY AREN’T WE TALKING ABOUT THIS?
Speaking of low interest rates… Here’s some advice… before you put your plans to buy on hold, you should remember that we are still enjoying historically low interest rates. 5 year fixed rates at 3.09%… Variable rates at 2.65%..!! This is a fact that so many of us tend to ignore…. maybe it’s just too boring to talk about. I’ll make it more exciting…
A $400k mortgage will carry for $1912/mth based on today’s 3.09% 5 yr fixed rate…….Wanna wait for house prices to fall and save some money? Ok, but you should also expect interest rates to rise… lower house prices are caused by higher interest rates and higher unemployment… We don’t expect higher unemployment so we must attribute any house price drop to a rise in interest rates……a look back at the last housing crash in 1989 showed interest rates went up to 11% and 12% just before the crash….. make sense so far?
This is where so many of us stop thinking or analyzing…Cashflow and affordability are probably just as important or more important than rate, mortgage balance, purchase price, etc… if you aren’t comfortable with the payment, you will run into problems…. By the way, affordability is still VERY good according the RBC affordability index.
REAL MORTGAGE MATH SHOWS TRUE COST OF WAITING TO BUY
Let’s continue….Let’s say rates go to more normal levels… we’ll use 5% interest rates.. That same $400k mortgage will cost you $2326/mth.…. and if you wanna adjust the mortgage size by $40k because house prices should fall 10%, okay… a $360k mortgage at 5% will cost you $2094/mth... That’s still $182/mth more… and let’s also not forget, that you may have lost 1, 2, 3 or more years of not paying a mortgage down…. Did you know you will pay your mortgage down by around $10k per year in the first 3 yrs alone?
Real Estate isn’t always a great investment, but it usually makes more sense to buy, hold and enjoy, than it does not to buy and rent…. And with interest rates at record lows, it’s even easier to make that recommendation. Stop listening to the pessimist that say the sky is falling or the world is ending… If we listened to them, we would be renting for the last 10+ years… for that’s how long they have been saying house prices are inflated and need to drop…..
As always, if you aren’t sure where you fit in or what’s best for you, feel free to contact me to discuss… Your questions and comments are welcome.
Steve Garganis
steve@mortgagenow.ca
416 224 0114
