|Is NOW a good time to BUY?|
It’s a question that we hear in the real estate world all the time. The answer is simple: It’s the right time to buy when (1) you want to, (2) you have a long-term view, and (3) you can afford to.
Buying patterns are dictated by a multitude of factors, but they mostly have to do with changes in life circumstance: moving out of your parents’ house, getting married, having a baby, getting transferred for work, and becoming an empty nester are all strong incentives for changing your living situation. Factored into this decision are thoughts on what is going to happen to the real estate market.
So, what is going to happen to the real estate market?
Take this headline from the Globe and Mail: ‘Housing Market has Cracks’. The article, which points to a Canadian housing market bubble, quotes economist David Rosenberg, who correctly forecasted the US housing crisis, who says the Canadian housing market is ‘overvalued by 15-35%’ and predicts that the market is ‘on the verge of collapse’. It’s a common theme in the news today. Except the article was written in 2009, right before the housing market rose an additional 15%, in spite of its advice to ‘brace yourself for a rough 2010′.
So it’s hard to predict where the housing market is going to go, especially in the short-term. In the long-term, real estate has been shown to appreciate at an average of 6-7% annually. Given that principle residences offer investors the single biggest loophole in the tax system – capital gains on principle residences are tax-free – similar investments would need to offer an historical return of 10+% per annum to compete.
But what if prices do fall in the short-run?
You may feel like you’ve made a mistake as prices begin to fall, but so long as you can afford the monthly payments and you do not move, it doesn’t really matter. The only times that real estate prices matter are the day you BUY and the day you SELL. What happens to the market in between is effectively irrelevant. This is why it’s important to buy a home that you can both afford and be happy with in the medium- to long-term. If the market turns negative, but you still like and can still afford to live in your house, there’s no need to sell at a loss. Conversely, if the market moves up, you’re participating in all the gains.
Like any investment, however, you need to have a long-term view. In the short-term, fluctuations in the market and transaction costs can eat up any gains that you expect to make. So go ahead. Jump in. But only if you (1) want to, (2) have a long-term view, and (3) can afford to.
|Article Source: Danny Nikas – MacDonald Realty firstname.lastname@example.org (May 2012)|