Tag: Krystle

TORONTO — After enduring bidding wars and skyrocketing home prices, would-be homebuyers are facing a relatively new dilemma: jump in to take advantage of lower national average prices or tread cautiously to avoid making a costly mistake.While current conditions may be too hard to resist, prospective homeowners should be in no hurry to make the largest purchase of their lives if they’re nervous about a coming economic slowdown and eventual recession, says the author of a book forecasting a housing crash in Canada that takes a decidedly contrarian view to that of the real estate industry.“I would say wait,” says Hilliard MacBeth, portfolio manager at Richardson GMP in Edmonton and author of the recently updated “When the Bubble Bursts: Surviving the Canadian Real Estate Crash.”“When prices are flat or falling, renting is always financially more successful than buying.”The Canadian Real Estate Association’s most recent market forecast released in June projected the national average price would edge down 0.6 per cent to around $485,000 this year following a 4.1 per cent drop in 2018. Home sales softened last year in the wake of new mortgage stress test rules and a rise in mortgage rates.Still, CREA’s most recent figures show the national average price for a home sold in May was close to $508,000, up 1.8 per cent from a year ago.Elevated home prices are squeezing some would-be buyers out of the market, sending others to seek out smaller homes and leaving some homeowners in a cash crunch.The Canada Mortgage and Housing Corp. said in May that household debt reached a record high at the end of last year even as mortgage activity slowed compared to a year earlier. Canadians debt-to-income ratio hit a record high of 178.5 per cent in the fourth quarter last year as mortgage holders continued to take on non-mortgage debt.International reports have suggested the Canadian economy could be at risk due to overinflated house prices.Canada’s largest real estate markets are at the highest risk of a major price correction since the 2008 financial crash when the U.S. housing bubble burst sending housing prices lower, said an International Monetary Fund report.The Bank of Canada said in May that housing prices in key markets of Toronto and Vancouver have cooled, but imbalances in real-estate markets are still an important vulnerability in Canada’s overall financial system.However, Canada’s Business Development Bank said that it doesn’t see a crash coming because the economy is doing well and job growth is strong.“As long as people continue to work, they will likely to be able to meet their debt repayments,” it wrote in April.MacBeth believes Canadians’ heavy debt loads and run-up in housing prices in recent years put the country’s housing market on the path to a dramatic correction that will be worse and last longer than what the United States experienced more than a decade ago.“Given that scenario it would be best to wait because the U.S. bubble when it crashed, it took four years to bottom, so one would expect that a larger bubble in Canada would probably take at least that long and probably a little bit longer.”Restoring affordability to housing will require a 40 to 50 per cent decrease in prices from the peak, he said.Prices have come down in Vancouver and while true affordability may never be restored in Toronto, the market is softer.Those in the real estate industry have a different view of what the softening market means for potential buyers and point to historical trends that suggest home purchases are always a wise investment.Phil Soper, chief executive of Royal LePage, one of the country’s largest real estate firms, believes the cooling presents buyers with great opportunities to profit in the long-term as housing inevitably appreciates in value. Canada’s housing market doesn’t have a history of severe depreciations even in tough times and that over several decades, Canadian home prices have appreciated more than five per cent per year, he said.He cautioned buyers not to try to time the housing market by waiting for the ultimate bottom.“Slowdowns are really hard to predict. It’s not necessarily going to happen,” he said.“We’re probably going to see an American recession sometime over the next couple of years which will slow the market in Canada but not necessarily so. And if history is any guide you’ll do well in almost any place in Canada.”The housing market tends to adjust during economic downturns or recessions because the number of homes listed for sale plummets and the number of buyers decrease so supply and demand remains largely in balance.“If you look back over the last 20 or 25 years there have been very few periods where we actually had a drop in prices for more than 12 months in most markets,” said Craig Hennigar, director of market intelligence at Colliers International.With prices flat, and houses sitting longer without offers, it’s a great time to be buying because there is less competition and more opportunity to include conditions such as financing and inspection, says Hennigar.Mortgage rates are also so low that more of the monthly payments can go to principal.The decision to buy a house is more about it meeting your personal needs than it is price and value, he said.“Once you’re used to paying your mortgage do you care what your house is worth until you want to sell it,” Hennigar said.“So it’s really a forced savings. It’s a great tax-free investment that really supports your ability to live your life, which is probably the more important question, but people do get hung up on pricing.”Ross Marowits, The Canadian Press read more