That is the question facing potential first-time homebuyers who are weighing the benefits and risks of jumping into the housing market in the midst of the recession.
Until recently, many first-time buyers were priced out of real estate markets in major Canadian cities by frenzied bidding wars that sent prices into the stratosphere.
But the global recession has brought many housing markets back closer to Earth and, in the process, presented opportunities for first-time home buyers. House prices have fallen in many cities. So have mortgage rates. That means that buying a house has become more affordable. But buying and borrowing costs aren't the only factors potential homebuyers have to consider.
The recession has sent spasms of fear rippling through the job market. Canadian employers have shed 357,000 net jobs since October, pushing the unemployment rate to 8 per cent, a seven-year high. Economists are warning the jobless rate will likely continue to rise, with some forecasting 10 per cent unemployment by next year.
That has left potential homebuyers in a dilemma. Can they afford to pass up a chance to get into the housing market? At the same time, can they afford to make the biggest purchase of their lives when few jobs seem secure?
The best way for first-time buyers to assess whether they can comfortably afford to buy in the price range they are considering is to apply for a pre-approved mortgage, said Karen Leggett, head of home equity financing at the Royal Bank of Canada. That process involves taking a close look at your down payment, household income, debts and liabilities, estimated monthly housing costs and spending patterns.
In this uncertain employment environment, potential homebuyers also should make sure they have built up an emergency fund to cover their mortgage costs if they lose their jobs, Leggett added.
"I think if you've covered off those bases, then you should be able to relatively comfortably and confidently be able to proceed with your purchase." Leggett said.
Leggett said that she has been hearing anecdotally that "a lot of first-time homebuyers are using this as an opportunity to get into the market." But she acknowledged that growing job insecurity is keeping some potential buyers on the sidelines.
"At the end of the day, if you don't really have employment certainty, whether it's the best buyers' market there ever has been, that probably doesn't change your decision."
"But if you do have some employment certainty, you have a reasonably good credit profile and you have your emergency fund, and you're sort of secured for a normal course of events and even somewhat a downturn in events, then reasonably you have to continue to live your life and move forward," said Leggett said. "It is a good time to buy if you can create some certainty around those parameters."
Leslie Fallaise, an outside mortgage agent with Northwood Mortgage Ltd., said first-time homebuyers are feeling "stressed and pressured" by conflicting messages.
On one hand, "they're hearing great low interest rates - this is the time to do it, you're never going to see this again," she said. But some are also wondering if the housing market has really bottomed out yet.
By the same token, many mortgage lenders are apprehensive and are tending to err on the side of caution., Fallaise said.
"I do know that there are no slam-dunk deals right now for first-time homebuyers," she said.
Janet Freedman, a financial planner with Toronto-based Finance Matters, cautioned that first-time homebuyers shouldn't be overly worried about missing a buying opportunity.
"I think they should be far more concerned in making sure they've got all their ducks in a row before they start looking for real estate," she said.
The most important consideration is how secure your job is.
"That is something that people really need to look at very carefully," Freedman said.
Like Leggett, Freedman counsels people to have money in the bank to cover mortgage payments in the event of job loss.
Freedman also advises people to have a minimum 20 per cent down payment, and to take advantage of the federal government's Home Buyers' Plan. The plan allows first-time home buyers to withdraw up to $25,000 tax-free from their registered retirement savings plan to purchase a home. Any withdrawal must be repaid within a 15-year period, starting the second year following the year in which a withdrawal was made.
First-time homebuyers also need to be very careful not to get carried away.
"Even if the bank tells them that they'll lend them a certain amount, they need to look at what their actual costs are going to be - the mortgage costs, the property taxes, which we all know are going up by leaps and bounds, utilities, and repairs and insurance, and all those things, and really work out whether they can afford it in their budget," Freedman said.
by Ann Perry - www.thestar.com