This is guest post by Kathryn.  She goes over why it’s a great time to be a first time home buyer.

If you have been considering jumping into the housing market for the first time, this may be the ideal time to do so.

Here are 7 reasons why this may be the perfect time to buy a house:

1. Interest rates have recently been cut to the lowest rate ever. Mortgage rates are amazingly low. ING’s 5 year fixed rate is at 4.24% and PC’s basic 5 year fixed if 4.34% as of early March. There are great deals out there right now.
2. Housing prices are dropping. Yes, it’s possible that house prices will continue to drop. Next year may even be a better time to buy a house. We don’t know what the markets will do in the short haul but right now they are looking better than they’ve looked in a long time.
3. It’s a buyer’s market out there. People are selling homes they can’t afford. Others are moving for a new job opportunity. There are lots of choices. It wasn’t that long ago that bidding wars were normal and conditions were easily waived. Even when we bought our first home in 2004, we put an offer on the house before the ‘for sale’ sign even went up on the lawn. Two other people wanted to make offers. We were the only one that didn’t have to sell a house first. Not having to sell your house first puts you at a huge advantage over other buyers who need to make the sale of their house conditional on the purchase.
4. Land Transfer Tax Refund. You can get a refund on the land transfer tax in Ontario for new or resale homes if you’re a first time home buyer. Before 2007 this applied only to new homes.
5. The Homebuyers Plan has increased to $25,000 for this year’s budget. That’s $25,000 each if you’re a couple! See this post on the Home Buyers Plan (HBP) for more info.   My only caution would be that it may not be the ideal time to cash out your RRSP for the Home Buyers Plan unless you have your money in very conservative investments. You may want to sit down with a professional or do some serious math to figure how if it’s worth using your RRSPs for the HBP in this economy.
6. Tax Credit for Initial Expenses. First time home owners can get a tax credit on up to $5,000 worth in expenses while purchasing their first home.  Since this is a federal tax credit, they would get 15% back which is up to $750 cash back.
7. Renovation Tax Credit.  If you’re willing, then you can purchase a fixer upper and get a tax credit (15%) on $10,000 in renovations to your home.  Note that this credit is for the 2009 tax year only.  Here’s more information on the home renovation tax refund.

For second time home buyers, there aren’t nearly as many incentives. We’re looking at a move to another city in the next year or so. The expenses on a second move are much more considerable than on the first.

• We’ll have to pay the land transfer tax.
• It’s the seller who pays the real estate fees and that’s going to amount to a chunk of change. In this market, we don’t want to sell our house on our own but looking at the fees involved it’s tempting to give it a try.

We’re going to have to downsize. A big city is simply more expensive than where we live now. We don’t want a larger mortgage so we’ll have to buy less house.

Had I known what I know now, would we still have bought in 2004? Absolutely! If you can afford it, owning your own house is a wonderful investment opportunity. Our house is worth $50,000 more than what we paid 5 years ago. In some neighborhoods, increases are even higher than that.

Home ownership comes with a price tag, but for those wanting to take the leap, it may be the perfect time to buy.

Do you have any advice for first time home buyers or for those looking to sell and buy in the next year?

Kathryn is a regular contributor on Million Dollar Journey and has a passion for personal finance.  She volunteers her time as a money coach meeting with ordinary Canadians, teaching them the basics of budgeting, no fee banking, saving for the future and other basics of personal finance.

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After my book review of “The New Retirement“, regular reader GatesVP decided to debunk the conclusions that the author made with statistics that he has found.  I took the bait and jumped into the conversation claiming that over the long term, equities will beat inflation.

What what is long term?  20 years?  30 years?  With this curiosity, I did some research on the net on historic market returns over specified periods.

Using the calculators from Money Chimp which takes returns from the S&P 500 over the past 50 years, I took the compounded annual rates of returns (CAGR) over various intervals.  I’ve also included the average inflation rate over the same period (also provided on Money Chimp).

Lets take a look at two different investment horizons, 20 years and 30 years, both starting at 1950.

20 Year Investment Horizon

I was actually quite surprised at the 20 year numbers as I was doing my calculations as the 20 year periods between 1959 and 1989 had negative returns after inflation.  However, the 20 year number look pretty good between 1975-2007.

It seems that moneychimp has made some changes to their algorithm so I’ve adjusted the table to reflect.  The new calculations show that over any 20 year period, the markets have beaten inflation.  However, the 20 year periods between 1959 and 1986 only returned in the 2% range after inflation.

30 Year Investment Horizon

Looking over the 30 year investment periods, it seems that dating all the back to 1950, equities always came out ahead well of inflation.  Past performance does not indicate future return, but it is comforting to see that even if we’re invested during the super bear market (or hyper inflation) years that we can come out comfortably ahead providing that we stick with it for the long term.

Another issue that worth pointing out is that inflation rates don’t always apply to everyone.  As inflation is based on the consumer price index (CPI), people can choose to reduce their spending or find ways to spend less money thus reducing their personal inflation.

Conclusions

As I mentioned above, past performance does not indicate future returns, but it’s a start!  As we can see, a half century ago, investing in all equities over 20 years resulted in poor returns after inflation.  However, investing over 30 year periods have consistently put investors well ahead of inflation since 1950.

Perhaps the largest conclusion that we can make is that it pays to retire during a bull market. :)

So what do you think?  Did these long term investment numbers surprise you as well?

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