TIPS FOR BUYING A HOME IN A HOT MARKET
When the Covid-19 first hit Canada, many economists warned of negative impacts on the housing market. In fact, Evan Siddal, president and chief executive of the Canada Mortgage and Housing Corporation, forecast that housing prices could fall as much as 18% due to the pandemic. He recently apologized for that statement on Twitter because the opposite has been true — the Canadian housing market has actually soared during the pandemic.
Just this March 2021, home sales in Ontario set a new record of almost 32,748 transactions, the highest level of activity of any month in history. That’s an increase of 84.3% year-over-year of actual (not seasonally adjusted) sales, according to the Ontario Real Estate Association.
Meanwhile, in Toronto, prices for a detached home rose a staggering 23.1% year-over-year. But the housing boom hasn’t been isolated to traditional hotspots like Toronto and Vancouver. Many smaller communities are also experiencing a high-volume of sales and unexpected bidding wars, as many people have shifted to work remotely, opening up possibilities of where to live. Many have chosen to leave the larger cities, where property and the cost of living is comparatively higher.
In March, home sales in Northern Ontario, including North Bay, Sault Ste. Marie, Sudbury, Thunder Bay, Timmins, Cochrane & Timiskaming Districts, showed an increase of sales of 54.3% year-over-year and an increase in average sale price of 28.8%.
If you’re like many Canadians, you’re probably scratching your head wondering why the housing market is booming now of all times. There doesn’t seem to be one simple answer, instead experts are attributing it to a number of contributing factors.
These factors might include, but are not limited to, pent up demand at the beginning of the pandemic when people were in lockdown and unable to shop for a home. Population growth and lower household spending is also part of the puzzle; many have saved more than usual during the pandemic. And as the federal government prints more stimulus money, the fear of inflation has also driven people to put their money into assets, like housing, to avoid depreciation of their hard-earned dollars.
During a frothy housing market like this, it can be hard to know how to approach buying your home. Here are some tips to keep in mind as you search for your dream home:
- Research the Market – Take a look at the historical prices and trends in Canada as well as the cities and neighbourhoods that you’re looking to buy in, ignoring the recent pandemic spikes. Are prices in the areas you’re looking at exhibiting a long-term term upwards trends? Also, look at factors like affordability, population growth, taxes, crime, weather, health services, amenities and internet access. This should help give you a better idea where to buy.
- Get Your Finances in Order – Now, during the pandemic, it’s more important than ever to ensure that you maintain a stable source of income and focus on paying down any existing debts, which may be easier said than done. Next, start putting together a household budget to give you an idea of all the expenses involved in home ownership. Don’t forget to include closing fees, bills and maintenance costs. And, finally, determine is how much you can put towards your mortgage down payment.
- Figure Out Your Price Range – When you’re trying to figure out what you can afford, a mortgage pre-qualification test is a good place to start. It’ll typically ask a few questions about your down payment, income and debts and then give you a rough idea if a home is in your price range. It’s important to note that pre-qualification is an estimate of affordability, but it doesn’t constitute mortgage pre-approval (more on that later). But it does give you enough info to start looking for houses in your price range.
- Find the Right Fit – When it comes to mortgages, you’ve probably heard the terms like fixed or variable and open or closed. There are plenty of online tools that can help you familiarize yourself with these mortgage options and figure out what’s right for your specific situation. When in doubt, it’s a good idea to connect with a mortgage expert who can help you on your homebuying journey.
- Get Your Mortgage Pre-Approved – This is the point when you make what you can afford official, so to speak. When you get your mortgage pre-approved, your financial institution verifies all your information and commits to lend you a certain amount of money. Typically, it can be done online, or you can make an appointment with a mortgage specialist, who can walk you through the process. Once your mortgage is pre-approved, you’re ready to make an offer.
- Beware of a Bubble – From 2000-2020, housing prices in Canada have risen 168.4%, the highest amount in the world over this period, sparking debates about a possible bubble. However, if you are selling and buying in the same market, there isn’t really a good or bad time to make the move. For example, if you sell while markets are high, you’ll get a good price, but you’ll also pay more for your new home, so it kind of evens out. And, if you’re a first-time buyer, they say ‘time in the market trumps timing the market’ and a home is typically a long-term investment, so short-term price fluctuations may not matter as much.
One thing’s for certain – it’s an exciting time to buy or sell a home in this market. If you need help at any step in your home buying journey, your best bet is to speak to a local mortgage expert, who will take the time to get to know you so they can help you reach your home ownership goals.