Is now the right time to buy?
My standard answer is "yes, it is always the right time to buy real estate. Of course it is, we're sales guys and don't get paid until we sell a house right. However... What about the numbers, do they support BUYING TODAY??
Let's say you purchased a starter home 5 years ago. Your mortgage renewal is coming up, and you're thinking the rates are low I can buy more house for my mortgage payment. What about prices. I hear that prices are coming down. Maybe I should wait.
In January, 2010. the Median Sale Price was $300,000. A nice even number for us to work with.
You Bought your home for $300,000 in 2010.
Today your home Might be closer to the Median Average of $336,250 last month. However for easy math and visuals we'll say $350,000
So you're up in value. Not massive amounts, but solid growth combined with your mortgage payments, you've generated $30 - $40,000 in equity. If you sell you can use that towards your new purchase. We're talking about Buying Up, so there is no sense in moving lateral. Today, that house you want has an attached garage, is fully finished, 4 or more bedrooms etc... and after talking to your banker he/she says you can buy up to $450,000. Clearly Buying Up in Price.
So should you wait to buy that house you "want" or sell your current home NOW and move this spring?
Typically we think of housing prices doing this...
In Red Deer, they actually have done this:
Maybe you follow the news, and you know Alberta is in an economic down turn. You're friend at Oil & Gas Company ABC is on an extended Spring Break Up, also known as a lay off. The news tells you sales of real estate are down. So Prices should fall right? However, this is Alberta. Prices come back and over time they go up. We'll come out of this is a year or two. Maybe sooner?
With those assumptions our market for price might look more like...
So yes, that $450,000 house you want will most likely come down. However, you still have a house to sell. So unless your street is immune to the decline you're predicting, it will go down by the same percentage. My crystal ball says 5%. (***note I only have a magic 8 ball. I possess no future predicting abilities ****).
Your House Purchase Plans:
|Today's Price||The If I Wait Price (5% lower)||Net Change|
|Net Savings of Waiting...||$5,000|
Sure, if you wait it might be possible to save $5,000. However what about that darn mortgage?
Instead of $50,000 of equity You now have $32,500 (remember we said you paid $300,000 for your existing home). If your bank says "yes we can finance you but you need to put 10% down. That down payment requirement moved from $45,000 to $42,750. Wow $2,250 lower, thanks bank. I'm no math wizard but that sure looks like your equity is now $10,000 short of your needed down payment. ($32,500 Equity - $42,750 Down Payment = - $10,250). Not to mention New Title Registration Fee & Mortgage Registration Fee Increases July 1 of close to $1,000.
If you're using equity in your existing home to purchase UP, then there is a significant cost of waiting. You should BUY NOW if you are Buying Up in a Down Market.
Stats, Median Sale prices etc... are from the Central Alberta REALTORS® Association MLS® data. Consult with your REALTOR® on your home value and plans, or give us a call to book a private no obligation consultation.
Century 21 Advantage.