What To Do When Housing Prices Fall
It appears as though the seemingly infinite rise of Canadian housing prices has finally come to an end. After years of marvelling at record breaking list prices and historically low mortgage rates, the tides have finally shifted. Phrases like “cooling market” and “slow sales” are gracing national headlines, causing buyers and sellers alike to contemplate the repercussions.
If we’re to believe what the experts are saying, real estate in Canada has hit a tipping point. According to the Canadian Real Estate Association, sales are down a staggering 30 percent compared to last years numbers. What’s more, the average house price has dropped by roughly 3.5 percent since July.
And that’s just the beginning. CIBC World Markets has suggested that prices could continue to plummet, dropping nearly 10 percent in the months and years to come. According to David Rosenberg, an economist with Gluskin + Associates, our current housing market is overvalued by anywhere between 15 and 30 percent, which can mean only one thing – big proce drops.
Taking a Closer Look at Your Investment
One of the greatest allures of homeownership is the investment potential. It used to be that if you bought a house and hung onto it for 10 or 15 years, you could turn around and sell it for a fantastic profit. That’s not necessarily the case anymore. Booming real estate markets don’t last forever. Granted, an extreme drop in real estate price, like the 50 percent free fall that many of the states in the U.S. experienced back in 2008, probably won’t happen here. But we’re bound to feel the aftershocks. Even a 20 percent price drop could be enough to cause some serious market correction for years to come.
What to Do If You’re Thinking About Buying
The best thing you can do if you’re considering buying a home is to get pre-approved. Secure a low mortgage rate today and then sit back and wait. Continue to save toward your down payment and keep a close eye on the market. Things are about to swing in your direction, so don’t be hasty.
When prices do drop, remember to stay reasonable. Resist the urge to purchase that sprawling estate, just because you can. If you max out your budget, you’ll limit your financial flexibility, which can often lead to disaster.
You’ll also need to resist the urge to overspend on your home purchase. Remember: you should never spend more than 40 percent of your gross household income on housing-related expenses. This includes property taxes, maintenance expenses, insurance and your mortgage.
If You’re Thinking of Selling
Don’t make any rash decisions right now. Yes, the market is beginning to slow and prices are beginning to fall. However, that doesn’t mean now is the time to sell in order to lock in some of your gains. Selling property is an expensive undertaking – land transfer costs, taxes, moving expenses, legal fees – the list is a long one. When all is said and done, will you really be turning a profit selling now? If the answer is no, now isn’t the right time.
If you have to sell, remember to reasonable about your list price. It’s a competitive market and prices are headed south. Don’t waste precious time being unreasonable about your asking price. Work with your real estate agent to come up with a fair asking price.
Lastly, reconsider any renos that you might have on the horizon. If home prices keep falling, chances are you won’t recoup much of the money that you’ll be spending. Unless it’s a modest update, be careful. Borrowing more money against any luxurious upgrades could just put you further in the hole.
Homeowners have about as much control over the real estate market as they do the weather. As such, stop worrying. Once you’ve paid down your mortgage to the point that you’re comfortable, consider focusing on other things. Just because your roof isn’t worth as much as you think it should be, it’s still over your head.
For further financial assistance, contact the mortgage brokers at FamilyLending.ca. Their knowledgable brokers can help you understand the market and find the best mortgage rate available.