Image: Suat Eman / FreeDigitalPhotos.net
Although Canada’s real estate market remains hot – and economists predict that it will stay that way, at least for a little while – many analysts are cautioning new home-buyers to proceed with care.
New home-buyers that are taking advantage of the current market, and getting into the housing market a bit earlier than they might otherwise have planned to, should be particularly cautious. For buyers making the minimum 5 per cent deposit and taking the full 35-year amortization, taking careful stock of finances is going to be key to ensuring the long-term viability of new property ownership.
On the other hand, buyers who have already spent a lifetime being cautious and have a good chunk of money saved up would be well-advised to make a move at a time like this.
According to recent forecasts, house prices are expected to significantly appreciate during the first half of the year, building on the trend that started in 2009 and saw house prices appreciate by as much 19 per cent. While that’s good news for anyone planning to sell, it doesn’t look likely that incomes will be rising – at least not in concert with the escalating house prices. And that can mean financial strain when interest rates start rising, too.
And yet the current low borrowing costs are continuing to reel in new buyers, worried that if they don’t get in now, they’ll miss their chance.
Interest rates are only going to be rising as housing costs appreciate. For new homeowners who are stretched to cover the mortgage on their new home, their expenses may not be sustainable if the rates increase by 25 or 30 per cent.
Luckily, the mortgaging standards in Canada are more stringent than in the U.S., where homeowners could simply walk away from their houses leading to the subprime mortgage crisis. But if home prices turn down, there could still be a problem as the housing market has a direct impact on the economy – fuelling spending when the values are on the rise, and discouraging it when the housing prices fall.
In any case, analysts are predicting that the market will stabilize later this year; rates will come up, and more houses will be on the market.
Nelson Goulart
Broker of Record with Signature Service GMAC Real Estate
www.infomarketgroup.com
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