Is a slowing housing market the kiss of death for the Canadian economy? While there’s no doubt that a falling market comes with its fair share of bad karma, it doesn’t necessarily mean that we’re headed towards a full on market crash similar to the U.S. In fact, a decline in home prices could actually come with some benefits. Here’s a look at some of the best reasons to embrace the slow down.
1) Lower Prices Will Attract First Time Home Buyers
Right now it sucks to be a first time home buyer. Even with historically low interest rates, homes are just too expensive for young adults. Those who are buying now are sacrificing other financial obligations (retirement savings and putting money away for their kids’ education) in order to manage payments. Carrying a mortgage is hard, and now that the maximum amortization for people with less than a 20 percent down payment has fallen to 25 years, it’s only getting harder.
Lower house prices make it easier for cash-strapped individuals to take the first step on the real estate ladder. In most cases, first time home buyers account for up to half of the housing market. Stimulating this stagnant sector could have an unexpected positive impact on the economy.
2) Buyers Will Be Smarter
Let’s be honest, there’s a reason why we’re in this mess. Too many people are buying houses now simply because of low mortgage rates. These individuals are scrambling to get by as it is – imagine the financial hardships that will come into play when interest rates go up. A sizzling market can cause rational buyers to push their financial limits and make back long term investments. When this market cools and prices fall, there’s far less desperation behind the desire to buy. Buyers have the time and space to reflect on their purchase and make a sensible decision.
3) Sellers Can Still Pocket Good Money
Don’t kick yourself over an imagined loss. Sure, if you sold your home now you could make a tidy profit. But waiting to sell it during the market slowdown doesn’t mean you’re automatically going to take a loss. The national average resale price of a property in Canada 10 years ago was $205,333. The most recent numbers come in at around $375,605. That’s an increase of about 6.2 percent each year. If housing prices fall now by 10 percent, you’re still looking at a 10-year gain of 5.1 percent. Considering that inflation rates for the past 10 years have hovered around 2.1 percent, you should still make out with a pretty good chunk of change, depending on when you purchased the property and for how much.
4) It’s an Investors Market
The golden rule of smart investing? Buy low. Now is the perfect time to get your feet wet and invest in an income property. Money isn’t made when the prices are high, so play your cards smart and make your move when the market starts to free fall.
5) There Are Deals Around Every Corner
Sellers are often more willing to cut a deal when the market is down. This is because some sellers simply cannot manage their increased mortgage rates and are forced to downsize. Foreclosures will also increase, increasing the inventory of available properties.
Buying real estate is a big decision in any market, however there are a number of major benefits to buying when the market is falling. In some cases, you may even be able to afford a home that would normally be out of your reach after talking with an experienced mortgage broker.