You’ve decided that you’re ready to downsize and buy your next home—but you find yourself overcome with fears and anxieties. Or, on the other hand, perhaps you’re excited to start a new chapter of your life in a new home. Before you sign on the dotted line, pause for a moment and ask yourself if you’re falling into one of these common homeowner traps:
Trap #1: Assuming that buying is always better than renting: the idea that renting a home equals ‘throwing money away’ is one of the most pervasive myths. In reality, the decision to buy vs. rent should be based on factors such as the average housing and rent prices in your location, the amount of time you’ll live in that dwelling, your tax bracket, the mortgage rate for which you qualify, property tax, insurance rates in your area, projected appreciation in your area, inflation assumptions, and more. For example, assuming you’ll live somewhere for three years, if you can buy a home for $100,000 that would cost $1,000 per month in rent, buying may be the better option. If, however, you need to pay $650,000 to buy a new home you could rent for $1,000, renting might truly be the better choice.
Trap #2: Believing your current needs reflect your future needs: if your children have moved out of your home, you want to travel the world, and don’t want to spend a lot of time maintaining your home, you might choose to move into a smaller home that will fit your lifestyle. The question is will you have the same priorities in five years? Remember that you’re buying a home to suit your future needs, not just your current ones. Purchase a home that you’ll grow into or shrink into as the size of your family home expands or contracts. Anticipate other factors such as maintenance, yard size, neighbourhood safety and walkability.
Trap #3: Fear of getting ‘priced out of the market’: home prices have increased in the past five years. It can be tempting to believe that prices will continue to rise indefinitely, and that if you don’t purchase a home today, you’ll get ‘priced out’ of the housing market. It’s also tempting to believe if you buy now, you’ll definitely flip your home for a profit when it’s time to sell. Neither of those are foregone conclusions. The housing market is pretty cyclical, like all other industries: prices rise and fall. In addition, housing is local: price and appreciation activity in Oakville, Ontario doesn’t necessarily reflect activity in Vancouver, British Columbia. Leave speculation aside. Purchase a home based on your family’s budget and needs, not your guesses about what the future may or may not hold.
Trap #4: Believing all renovations are profitable: are you selling your current home in order to move into a different one? If so, you might be in the midst of renovating. Many homeowners update their kitchens, bathrooms, landscaping, and other features in order to make their home more attractive to potential buyers. But that doesn’t mean you’ll recoup the cost of your renovation. While some updates might get you a higher price, other updates lack a return on investment. Replacing peeling laminate countertops with builder-grade granite might help your house sell faster, but upgrading to a rare style of granite with an ornate beveled edge probably won’t make a difference to buyers.
Bottom line: there are plenty of myths and assumptions about the housing market. If you believe too deeply into these areas, you’ll run the risk of overspending. Don’t fall into the trap of thinking ‘housing prices will always rise,’ ‘renovations will always pay off,’ or—worst of all—‘this time, it’s different.’ Focus on purchasing a home that you cherish that fulfills your needs and wants, both now and in the future. And enjoy your new home!
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