• Is it a good time to buy?

     Given all the recent positive data on the real estate market, I’ve had a lot of inquiries about whether or not it’s a good time to buy, or is the greater Vancouver market overpriced and headed for another pull back.

     There is a general consensus that rates will increase over the next few years, which could certainly slow demand and cool off this hot market, which is once again approaching unaffordable levels.

     However, if you’re considering purchasing, you might want to take the following into account:

     At current rate levels, you could secure a 5-year fixed-rate mortgage for as low as 3.69%. The total interest paid to the bank or mortgage lender over these 5 years would be $52,907 based on a mortgage of $300,000 (assuming a purchase of $400,000 with a down payment of $100,000 or 25%, for the purpose of this discussion).

     If you were to wait a year or so and find that the market ‘corrects’ or pulls back by 5%, as you had hoped, the same property could be purchased for $380,000, but could quite possibly come with a 5-year mortgage rate of 5.69%, a level we’ve seen as recently as 2007.

     The total interest paid over the 5 years at this increased rate would be $71,298. This difference in interest of $18,391 would wipe out over 90% of the 5% savings on price.

     So the important question then is; if you plan to buy a property, will you need a mortgage?

     If you’re fortunate enough to be able to purchase a property with your own savings or resources, then it may be worth trying to time the market and avoid buying in the midst of this current peak.

     If you’re like most Canadians and require a mortgage, should rates increase and the market correct, it appears to be all relative.

     We’ve all heard the advice from our bank or financial planner about investing: “Time in the market is often better than timing the market.” One could certainly argue the same for real estate; as securing a property with a mortgage at historically low levels could bring your average rate down for the life of the mortgage, drastically reducing your interest costs and the overall cost of the property.

     This is just one way of looking at this decision. The example outlined above makes a lot of assumptions and things may not necessarily play out this way. While there are several other variables to consider, I hope this gives you some food for thought. The best of course of action would be to speak with a mortgage planner and find out if it’s the right time for you, depending on your financial objectives.

     I welcome any comments or a different perspective.

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