When Is The Right Time To Buy A Home!
Owning a home is a national dream for all of us, not only in Canada but anywhere else in the world.
There are and there will be considerable debate as to whether it is better to own or to rent. I think that there are clear evidences that in the long run owning a home is better than renting. As an example, I bought a home in Vancouver in 1987 for $140,000.00. This house is now worth $650,000.00. In 20 years it has appreciated 4 to 5 times.
My average monthly payment over the years was about $700.00 based on a $105,000.00 loan (75% was the maximum I could borrow at that time). If I had rented the same house, the rent in 1987 was about $700.00 per month but to-day it will be around $2,500.00. By owning the home, I had not only avoided the 3 to 4-fold increase in rent but I now own a fully paid home worth $650,000.00. If I had rented I will have nothing today. Of course there are expenses associated with maintaining the house over the years, such as putting new carpet, new roof, new paints but this is insignificant compared to the growth in the home equity.
On the other hand owning real estate for investment purposes may not be a joyful matter because there will be ups and downs. I remember a few friends owning condos in the early 1990. For many years they had to struggle with negative cash flow because they could not get enough rent to cover their monthly mortgage payments and maintenance costs. Also they attempted desperately to sell the property but could not unless at a significant loss.
There are two lessons to be learned here. First the properties were purchased at the \"peak\", which is not a wise decision. It is human nature that every body likes to buy in a hot market where prices are going up every day, because they believe tomorrow price will be higher. Secondly real estate investment is usually good for the long term. If my friends had the ability to hold on the property, the value would have gone up 3-fold today, making the investment worthwhile.
The question is \"when is the right time to buy\".
I personally think that it is not wise to buy toward the end of an up market. If you are buying when the market is at its peak, how much more could the price go up. At that point it is better to take a step back and wait for price to stabilise before buying. There is nothing to loose but a lot to gain because prices cannot keep on going forever in a hot market. Price is bound to stabilise or even drop somewhat after all the hypes of the hot real estate market are gone.
It is probably wiser to buy when the market is steady or better still in a down market. When no one is buying, it is time to buy because there would be more choices and also you would be able to negotiate prices.
It is also right time to buy when you think that your financial situation is good enough to allow you to make your monthly payment comfortably. What is the point to own a home when you have to struggle with mortgage payments from month to month.
Currently real estate in the U.S. is not doing that well due to the adverse effect of the \"sub prime mortgage\". Many homeowners who jumped in buying a home with sub prime mortgages, are just unable to make their mortgage payments. I believe that many jumped in the real estate market with a huge mortgage and stretched finance because they believed that property value would continue to go up and make owning a home with sub prime mortgage a worthwhile investment. Today we see a lot of foreclosures in the U.S. and house prices are falling.
May be this is the right time to keep a close watch of the real estate market and look for opportunities.
The author has been in the financial banking industry for over 30 years and is now
retired. For more information about mortgages please visit his website:
http://www.mortgagetoronto.info
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