# buying in 2010



## CuriousReader (Apr 3, 2009)

Hi everyone ... so I've been trying / working towards saving as much as possible for downpayment before i start to actually look at places to buy. Buying my own place (condo/townhouse) has been on my mind for a while, but I am still working towards the downpayment first, at least (hopefully) to have 25-30% downpayment.

With all the news that housing prices in Canada seem immune to the recession and even on the upwards .. there are always competing views of what's going to happen in 2010. There's also the expected prime rate going up sometime in 2010.

I know timing the market is pretty much a useless idea, but I am just wondering what do people in this forum think, if I have enough for downpayment in early 2010 should I try hard to find a place asap before the expected raise in interest rates? Or should I wait a bit longer hoping that the market cools down because of higher interest rate which mean higher mortgage rate but lower house prices?

Thanks!


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## Berubeland (Sep 6, 2009)

Where are you buying?


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## CanadianCapitalist (Mar 31, 2009)

CuriousReader said:


> Hi everyone ... so I've been trying / working towards saving as much as possible for downpayment before i start to actually look at places to buy. Buying my own place (condo/townhouse) has been on my mind for a while, but I am still working towards the downpayment first, at least (hopefully) to have 25-30% downpayment.
> 
> With all the news that housing prices in Canada seem immune to the recession and even on the upwards .. there are always competing views of what's going to happen in 2010. There's also the expected prime rate going up sometime in 2010.
> 
> ...


It is true that home prices seem pretty high, so you have three options: (1) Keep renting and plan a purchase when prices seem more reasonable. (2) Buy now provided you have a sizable downpayment already (but smaller than your target) but can comfortably handle housing costs in your budget (even in an emergency). (3) Wait to build your target downpayment and then buy.

Each has its own pros and cons. Buying a home is a lifestyle decision, so you (or your SO) may not be willing to wait for a long time. It could take a long time housing prices to correct. Just because they are insane now doesn't mean they can't become even more so. With (2), you might buy now and regret it because housing prices suddenly corrected. With (3), you might have a moving target.

I'll relate my own experience when we purchased a home coming out of the previous recession (at least in tech land). I opted for (3) but housing prices kept going up and the more it went up, the more I needed to save. At one point, we decided that since we could handle housing costs comfortably, i.e. (2), we'll buy. Two months after we purchased our home I got laid off. If I had waited for (3), we would have waited some more because I would have been job hunting, not house hunting. Life is unpredictable and it is hard to say how any action we take will play out. The only thing we can do is take thoughtful action based on the hand we are dealt with today.


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## CuriousReader (Apr 3, 2009)

Berubeland said:


> Where are you buying?


Sadly ... Toronto ... lol

This is where my job is and for the forseeable future, myself and my gf would be in Toronto. And if I ever got laid off, there are more opportunities to get another job in Toronto. So ... (unfortunately in terms of real estate prices for me), Toronto is the place to be for the next while.



CanadianCapitalist said:


> It is true that home prices seem pretty high, so you have three options: (1) Keep renting and plan a purchase when prices seem more reasonable.


yeah, but counting the "opportunity cost" of rent expense vs payment towards mortgage for me would probably be better off paying mortgage. I know there's been a lot of discussion about renting vs buying, but personally, I think buying is better in my situation.



CanadianCapitalist said:


> (2) Buy now provided you have a sizable downpayment already (but smaller than your target) but can comfortably handle housing costs in your budget (even in an emergency).


Yeah, I havent checked how much mortgage I would be allowed to get. I dont want to start checking now because I dont want to get my credit report hit at this time, .. And I am planning to get 25-30% downpayment with some help from family members.


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## CanadianCapitalist (Mar 31, 2009)

CuriousReader said:


> Yeah, I havent checked how much mortgage I would be allowed to get. I dont want to start checking now because I dont want to get my credit report hit at this time, .. And I am planning to get 25-30% downpayment with some help from family members.


You can check out online "How much can I borrow" calculators:

http://www.ingdirect.ca/en/tools/index.html#

Note that lenders might be willing to provide a bigger mortgage than you may comfortably handle within your monthly budget.


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## Shayne (Apr 3, 2009)

> Yeah, I havent checked how much mortgage I would be allowed to get. I dont want to start checking now because I dont want to get my credit report hit at this time, .. And I am planning to get 25-30% downpayment with some help from family members.


Don't worry about one credit hit. If you have always paid your bills on time and have credit history it will not be an issue. 

If you want feel free to send me your monthly gross income and monthly debt payments and I will tell you how much you would qualify for. It is likely more than you would want to take on. 

The online mortgage calculators are ok, but a little out of touch with reality.


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## CuriousReader (Apr 3, 2009)

Shayne said:


> The online mortgage calculators are ok, but a little out of touch with reality.


That's what I found too, hence I never take the numbers I got from them to be a starting point.

I dont have monthly "debt" obligations, my monthly expenses simply involve: rent, insurance, internet/phone bill, and credit card bill (I always pay my credit card in full each month, I use them just for the points/rewards)

What about if we run some number ranges and see how much mortgage that amount would qualify for? May be with ranges, it could also help others in this forum who are just starting to look at mortgages.

Gross monthly income of: (@Shayne - if it's too much trouble, dont worry about it)


$3,000


$3,500


$4,500


$5,000


$5,500


$6,000


$6,500

Actually, it would be interesting to see how much $500 differrence in monthly gross income make to the amount of mortgage you can get. And whether such effect changes as you go higher up.


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## Shayne (Apr 3, 2009)

Not too much trouble, but I see you want to play with some numbers. If you post or PM me your email address I will email you a spreadsheet that will totally meet your needs.


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## iherald (Apr 18, 2009)

CuriousReader said:


> Hi everyone ... so I've been trying / working towards saving as much as possible for downpayment before i start to actually look at places to buy. Buying my own place (condo/townhouse) has been on my mind for a while, but I am still working towards the downpayment first, at least (hopefully) to have 25-30% downpayment.
> 
> With all the news that housing prices in Canada seem immune to the recession and even on the upwards .. there are always competing views of what's going to happen in 2010. There's also the expected prime rate going up sometime in 2010.
> 
> ...


I bought a house this summer, so take everything I say with a grain of salt. I have been expecting housing prices to cool off in Toronto since about 2005. I wouldn't rush into the market today, but timing is always hard to do. 

I bought a duplex in a nice neighbourhood, so I'm happy with my decision. 

I'd think that if you go into crazy savings mode for the next year you'd likely do better with the loan because of the increased downpayment, even if rates go up. But that would depend upon how much you can save.


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## Shayne (Apr 3, 2009)

I whipped up a mortgage qualifier based on income, taxes, heat, condo fees and other monthly debt payments. It is not pretty but it is accurate. 

You must change the down payment amount and it must be at least 25% of the mortgage you qualify for. 

The calculations change slightly if you are putting down less than 20% and are a PITA.  If you have any questions please let me know.

www.debtfreeby43.com/quickymortgagequalifier.xls


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## CuriousReader (Apr 3, 2009)

Shayne said:


> www.debtfreeby43.com/quickymortgagequalifier.xls


Looks good ... thanks !

The numbers i got from your spreadsheet is not as depressing as those online calculators one. I found the online calculators one give u very little amount.


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## Shayne (Apr 3, 2009)

CuriousReader said:


> Looks good ... thanks !
> 
> The numbers i got from your spreadsheet is not as depressing as those online calculators one. I found the online calculators one give u very little amount.


Everyone is in a different situation. If you are good with your $$$ and employed where you know you will get annual increases you might want to think about a three year rate. The best I have seen out there right now is 3.4% You would be able to squeeze a few more dollars out. 

Good luck!!


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## dogcom (May 23, 2009)

Higher interest rates can actually be a very good thing if they go up high enough. High rates will nail the real estate market causing a big drop in house prices by shaking out the home owners who can just make the payments at lower the rates. Sure you would pay higher interest but then you would pay far less and will probably have an expectation of rates falling in the future instead of rising. So rushing in to buy before rates rise is not as good as you think it is.

When I bought my house I looked for the best deal in the best area I could get and the level of interest rates was my last concern. In fact I bought when things were bad and rates were higher and I also paid to high a rate of interest in hindsight, when I bought the house. Of course that is the opposite of what you think, but I came out way ahead in doing so.


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## Potato (Apr 3, 2009)

CuriousReader said:


> yeah, but counting the "opportunity cost" of rent expense vs payment towards mortgage for me would probably be better off paying mortgage. I know there's been a lot of discussion about renting vs buying, but personally, I think buying is better in my situation.



What do you mean the "opportunity cost of rent"? Typically we talk about the opportunity cost of a downpayment, since as a renter you could be having that money work for you...

Have you actually done a rent-vs-buy calculation?

I say this as someone who just recently went through the Toronto housing search and found a rental. It wasn't a cake-walk: there were a fair number of homes we rejected (landlords too, for that matter), but we did find a few really nice ones (both homes and landlords), and when we checked what it would cost to buy the homes we could rent, it was generally ~200-240X rent, which makes it very hard to justify owning in a financial sense.

Now, maybe there is some other reason why your situation is different from mine (kids, large dog, etc., can make finding a rental harder)... but it doesn't sound like you've done the math yet, and with a decision this big, I think it's well worth the small bit of time it takes. If you want help with the calculation there are lots of blog posts out there (including a few on BbtP to self-promote), and lots of helpful people on the forum here that can walk you through it for your own situation if you like.

Another worrying thing is that you seem to be really stretching in your goals -- you mentioned here that you thought that the bank estimators didn't give you enough mortgage for your inputs, which is troubling since as other posters have said, those lenders tend to be willing to give you enough debt to hang yourself with.


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## Alexandra (Apr 3, 2009)

If the location is Toronto, you would do well to wait it out a little bit for sure. Some of the prices I am seeing for crappy houses are INSANE. And if it is just you and your girlfriend, there are some VERY good renting deals out there in downtown T.O. Landlords are giving crazy incentives to rent out their empty apartments. I think that there are too many people who bought condos as "investments" who now are desperate to fill them.


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## Smac20 (Sep 7, 2009)

*Buying Residential Real Estate in 2010*

I am a Commercial Real Estate Appraiser in Vancouver and am very familiar with the Residential Market in Vancouver as well.

The current rally in Residential Real Estate we are seeing is in my opinion a suckers rally. This recession is some what unique because all the World Banks have attempted to delay or mute the affects of the recession by lowering interest rates to levels never seen. This will have ramifications in the future. 

Talk to any true real estate professional (No Brokers Please – they will tell you it’s the best time to buy always) and you will find that most understand that it is best to buy real estate when interest rates are high and wait sell when they are low. This comes from the simple fact that risk premiums shift with interest rates. For example, when you look to buy a home as an investment your are looking for a return greater than the cost of owning. When interest rates are high you will not be willing to spend as much on the property because the debt serving costs are high. A simple multifamily apartment will be valued by investors by taking the annual income divided by the interest rate they require to own. This interest rate is determined by adding a risk premium to the risk free rate (the rate the Bank of Canada sets). The higher the rate the lower the value of the building; the lower the rate the higher the price of the building.

Given that interest rates are at historical lows and given that rents are slow to adapt to inflation (lots of 1 year leases and rental tenancy act stuff), and given that interest rates generally rise faster than they fall…we will see a major downward correction in real estate prices within the coming 2 years.


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