Pros And Cons Of Waiting To Buy A Home

Home ownership is considered a rite of passage for most adults.  Whether it’s a house or condo, people of all ages and stages in life want to own their own home.  Currently, 2 out of every 3 Canadian households own the home they live in.

The challenge for many Canadians is the cost of buying a home, which continues to rise.  The national average home resale price in March was $369,677, which is buoyed by the Vancouver and Toronto markets, coming in at $761,742 and $504,117 respectively.

Prospective home buyers feel pressure to “get in” before being priced out of this hot housing market.  The banks recently tried capitalizing on this sense of urgency, promoting record low 5-year fixed rate mortgages for a limited time.

Related: First Time Home Buyer: HBP or TFSA?

So should you buy a home now and take advantage of ultra-low interest rates, or should you wait until housing prices come down from their record levels?  Let’s explore the pros and cons of waiting to buy a home:

Waiting to buy a home: Pros

Housing prices may fall.  In hot housing markets like Vancouver and Toronto, waiting to buy a home can seem like a losing proposition.  But consider the impact of a 10% decline in Vancouver housing prices, which would bring the average house price down to $685,000.

For Vancouver residents, waiting for housing prices to fall by 10% means saving more than $10,000 in interest payments over a 5-year period (assuming a 10% initial down payment).

Save up a larger down payment.  We wanted to buy a new home several years ago but we ended up waiting more than 18 months before building our new house.  During that time we saved up enough money to put 20% down on our new home, avoiding costly CMHC insurance premiums.

When you have a $300,000 mortgage and only put down 5% of the initial purchase price, you’ll pay an additional $8,250 in CMHC insurance premiums.  Saving up a larger down payment is tough to do, but it can save you thousands in fees.

Waiting to buy a home: Cons

Housing prices may continue to rise.  Most people believe that Canadian housing prices are due for a major correction in the short term.  Plenty of would-be home buyers are staying on the sidelines waiting for the housing bubble to burst.  Yet as prices keep climbing, prospective home buyers risk getting priced out of the market.

If you have a sizeable down payment and don’t plan on selling for 10+ years, buying a home now can be a smart financial move.  Just try not to get drawn into a bidding war, where emotions take over and you end up paying well over market price for your new home.

The current economic climate favours buying now.  Economists have been warning Canadians since 2009 that these record low interest rates won’t last much longer.  Recent signals from the Bank of Canada point to interest rates rising later this year and into 2013.

The low interest rate environment of the past few years, combined with flexible lending standards (5% down, 30-year amortization) have kept housing costs somewhat affordable in Canada.

5-year 2.99% promotional mortgage rates are long gone, but home buyers can still get 5-year fixed rates as low as 3.24% and 10-year fixed rates as low as 3.99%.

With the average Canadian house priced around $370,000, home buyers can put down as little as $18,500 (5% of purchase price) and pay less than $1,500 a month in mortgage payments.

There’s an argument to be made that prospective home buyers should buy now and take advantage of the low cost of borrowing that may not be available in a year or two.

Final Thoughts

Most of the doomsday scenarios surrounding the Canadian real estate bubble are referring specifically to Vancouver and Toronto.  Housing prices are so high in these two cities that, unless you have a sizeable down payment and stable employment, it makes the most sense to remain on the sidelines and wait for a correction.

Housing prices across the rest of country appear to be relatively affordable.  Jumping into the housing market now, while fixed rates are under 4%, seems very attractive.  Just remember to:

  • Stress-test your finances using the posted 5-year rate as opposed to the promotional rate you’ll receive.  See if your personal budget can handle a 2-3% increase in interest rates, which you may be faced with when it comes time to renew.
  • Put down as much as you can afford, preferably 20%, while leaving yourself a few thousand dollars for closing costs and to cover any unexpected purchases.

Do you think that waiting to buy a home is the smart move right now?  Or should prospective home buyers take advantage of low interest rates and jump into the housing market now?

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  1. krantcents on April 23, 2012 at 8:34 am

    I think now is a great time to buy. You can never get the lowest price or catch the bottom. This is as good as it gets with interest rates so low.

  2. Modest Money on April 23, 2012 at 8:50 am

    I personally doubt the real estate prices here in Vancouver are coming down anytime soon. Due to investor influence, the prices will likely just keep rising. So there isn’t much point in waiting if you are in one of those hot markets. I am waiting to buy, but mostly because I am not in a secure position financially. Also I am weighing the options of moving somewhere more affordable.

  3. The Passive Income Earner on April 23, 2012 at 5:51 pm

    I live in the Vancouver area and unfortunately, all stats portrayed relates to the “City of Vancouver” and not the surrounded cities where a large portion of the population lives. I see lots of options for first time home buyers. Prices have already come down and are flattening. I foresee a slight correction depending on the popularity of the area but don’t expect anything major.

    The question is: what is the expectation of the first time home buyers? Dream home? Mansion? or what is necessary for that time in your life.

  4. Marissa on April 24, 2012 at 3:43 pm

    My parents are thinking of investing in vacation properties south of the border. And, housing prices in Waterloo seem to be a lot more reasonable than Toronto which is 45 mins away.

  5. Roxy on April 25, 2012 at 8:58 am

    It’s always best to weight things first before making a decision. When i bought a house and lot, I didn’t wait for the price to fall because I’m already shouldering a monthly apartment rental. So buying a house asap was beneficial in my case because at least my apartment rental will go to my property investment.

  6. Farhaneh Haque on April 25, 2012 at 1:34 pm

    Deciding to buy now or wait will depend on your personal goals, needs and financial situation. One important factor is to evaluate how much you will pay in rent over the years and compare that to the the potential equity growth you’ll experience in that time. This online calculator can help you weigh your options.

  7. SE Book on April 25, 2012 at 6:03 pm

    I think if you start looking without a timeline you give yourself a chance to find exactly what you want you will be able to find the right home at the right price. I don’t think waiting for the market to go down more than it has is the thing to do.

  8. youngandthrifty on April 27, 2012 at 8:43 am

    I bought in 2010 (I think haha it’s all a blur now) and was really wary of it at the time because everyone was saying the market was going to burst. The market had gone even higher (in vancouver) since then.

    I really don’t see the current levels (up 30% or so + in Vancouver) sustainable, nor do I see that they will go up higher. But I guess you never know because I had thought that then!

    I think there are pros and cons to both I guess… like buying later when interests rates rise, the housing prices go down (or maybe not because of all these people sitting on the sidelines waiting to buy and saving up lots of down payment money).

  9. Geoff on April 28, 2012 at 8:36 am

    Here in the UK house prices are pretty stagnant. Mortgages have become harder to obtain as lenders are getting tougher with their lending criteria. Interest rates are quite low, but as deposits now generally have to be quite sizeable gone are the days of easy-to-get 90% or even 100% mortgages. I think it’ll be a buyer’s market for some time to come. In many other parts of Europe renting is the accepted way to have a roof over your head, they worry less about buying.

  10. Tom Napiontek on August 10, 2012 at 2:01 pm

    Thanks for this. I appreciate you pointing out the importance of realizing this is a Toronto and Vancouver issue, for the most part. So many are making this into doomsday for all of Canada, while many areas are still flourishing and are predicted to continue doing so, such as Alberta.

  11. VIP on August 10, 2012 at 2:05 pm

    We’ve been encouraging our clients to look at things the same way; and luckily, most are. Whether you’re looking to purchase for yourself or seeking an income property investment to help you into and during retirement with some extra, stable positive cash flow, there are plenty of areas that are and will continue to do quite well, with great growth rates predicted for up to the next 30 years. A report like this was released just this morning about Cornwall.

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