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It’s a Great Time to Buy Your First House

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.

If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).

About the author: Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

{ 82 comments… add one }
  • Ray March 17, 2009, 9:15 am

    I agree that it is a great time to plan a home purchase sometime in the next 12 months, a few weeks ago there was a rbc study that showed that majorit of people also think it’s a good time to buy in the next 12 months. We are planning on a purchase by this summer I personally would like to see some stablization in the housing market before buying yesterdays real estate report showed that there is some increase in buying month over month which I think is a good sign.

  • archanfel March 17, 2009, 9:25 am

    Unfortunately, most of the reasons listed says it’s not a good time to buy.

    1. Interest rates have recently been cut to the lowest rate ever.
    which means house price is artificially inflated. We know the rates will jump when inflation kick in. The best to buy is when the interest rate is high.

    2. Housing prices are dropping.
    It’s a self enforced cycle, we are only at the beginning of a downward cycle.

    3. It’s a buyer’s market out there.
    It’s not a buyer’s market. There is no market. Sellers are still holding out, partially due to some people are still thinking “It’s a great time to buy”.

    4. Land Transfer Tax Refund.
    I don’t see that changing.

    5. The Homebuyers Plan has increased to $25,000 for this year’s budget.
    Except RRSP can’t be cashed right now.

    The last two reasons are good reasons, but to be honest, a couple of thousands are not all that impressive when you are spending $300-$500K.

    I still think the price/rent ratio still does not make sense, at least not in Toronto. Now, I see home ownership as a consumption rather than an investment, but from a financial perspective, I don’t see many good reasons to buy.

  • Nicolas March 17, 2009, 10:09 am

    I would add a warning as to the size of the mortage. With rates being so low, it is easy to make payments on a huge mortgage. Should rates go up… ouch. Got to be careful.

    • FT FrugalTrader March 17, 2009, 10:41 am

      If interest rate is the real risk, the why not lock in for a longer term fixed rate? Personally though, I think the size of the mortgage is the most important factor. As some of you may know, my personal rule is that the mortgage should be no more than 2x family gross income.

  • Ray March 17, 2009, 10:17 am

    Nicolas that is a good point, calculate your mortgage payments on a higher interest rate and see if you are able to make those payments, if you can great if not than maybe you are not in a position to buy yet or should buy a cheaper house. We are planning on paying mortgage as if our rate is 5.5% this will help us budget properly for higher interest rates and will pay off more of the principle during low interest period so reducing overall cost.

  • Ray March 17, 2009, 10:38 am

    Nicolas that is a good point, calculate your mortgage payments on a higher interest rate and see if you are able to make those payments, if you can great if not than maybe you are not in a position to buy yet or should buy a cheaper house. We are planning on paying mortgage as if our rate is 5.5% this will help us budget properly for higher interest rates and will pay off more of the principle during low interest period so reducing overall cost

  • Nate March 17, 2009, 10:58 am

    We’re looking at buying later this year. Still just figuring out our budget.

    Anyone have recommendations on how much breathing room your family should have on the monthly budget? We’re expecting to have about 1200 a month after all expenses, including 16% of our income going into investments/retirement and a healthy amount spent on entertainment.

  • Ray March 17, 2009, 10:59 am

    Locking in a longer term interest rate could work as well but the cost would be too high. If i get a 5yr mortgage from Scotia the posted rate is 4.25% (although you can get lower) and for a 10 yr rate it’s 7.15% if i locked in for 10 years i would be paying almost 3% higher interest rate, but If i get the 5yr rate and pay as if i am paying a 6% rate I would have a cushion when interest rates rise and will be paying my principle rather than interest.
    Anyways that is my understanding of it, I am not a mortgage specialist but it makes sense to me unless I am missing something.

  • Mark March 17, 2009, 11:11 am

    I believe everyones comments are true, (except for Archanfel; you need to review your comments, some of them don’t make sense…), the other thing that is even more important is the fact that every situation is personal, no 2 peoples have the same background or view for their future…

    I purchased a first condo in 1999 and in 2005 purchased another and I can tell you that both were profitable; yes, the equity on the 2nd is smaller but I’m still better off than having continued to rent…

    As a business and part-time credit consultant, I can assure you that anytime a friend or client was showing me or asking me how to carefully plan their finances in the prospect of purchasing a house, they were better off in the long run purchasing a house instead of continuing to rent, whatever the interest rate may be (remember the 80’s?)… equity is equity in whatever language…

    I see so many peoples, mostly the generation X’s these days, that want the big house, car & everything that comes with it without first having done their homework in regards to budget, finances, etc.

    Everything around you might be right; great interest rate, great price for the house, a good deposit from savings, etc, etc but if you haven’t done your homework and straightened out your finances and budget, this will only give you short term advantages, nothing else…

    Bottom line: Can you afford it? why? — If you can answer these 2 questions, than you’re in business; if not, do your homework…

  • DAvid March 17, 2009, 11:16 am

    One of the advantages of owning a home, especially in growing markets is that it insulates you from market increases. When we moved to our new town, we bought during a low in the real estate cycle, and when interest rates were reasonably low. In the 5 years since, our house value has more than doubled. I would not be able to enter today’s market, however being able to use that equity for a future purchase has protected us from the rise in the market.

    FrugalTrader said: “As some of you may know, my personal rule is that the mortgage should be no more than 2x family gross income.”

    We got caught in that trap a lifetime ago. I recommend basing your ability to pay based on your net income. In my case, due to costs which come from my paycheque before I see it, I receive only about 50% of my gross. Since these deductions are fixed, I found it unrealistic to use the banks rosy view of how much mortgage I could afford.


  • tom March 17, 2009, 11:32 am

    While reading next door millionaire, they recommended you take on a mortgage that is no more than twice your annual income.

    Sure it may be affordable to buy, but house prices here in Canada, haven’t dropped as much, depending where you are. Alberta is the hardest hit since their prices increased the most.

    But the biggest thing to consider is how to maintain the mortgage, in terms of income. What if you lose your job?

    Also, what if there’s still a few months or years before the market bottoms, you may be able to get a cheaper house but once again, income is the big concern.

  • Sampson March 17, 2009, 12:20 pm

    Longer term rates are fantastic. ScotiaBank recently announced a drop in their 10yr rate to 5.25%

    Although its obviously not as low as one can get these days, sure provides lots of stability. Its really incredible how many different real risk factors exist in our economy. Job security, interest rates etc.

  • Archanfel March 17, 2009, 12:28 pm

    Mark, a lot of people was profiting from Nortel, doesn’t make it a good buy.

    The housing market cycle are very long term. Toronto house price tanked from 1989 to 1996 and then recovered. 1999 and 2005 buys are hardly be tested by the boom and bust cycle yet.

    Also, profitability is never an issue with investment. I can hold a 1% money market fund for 20 years and claim myself to be profitable. ROI is far more important.

    Let’s take a $250,000 condo in Toronto for example. Let’s say you can rent for $1000/month. With a 7.15% long term interest rate over 25 years, you are paying $1811 in mortgage payment (ignore mortgage insurance for the moment). Condo fee say $450/month including utilities and insurance. Property tax would be another $208. So you are paying about $2470 instead of $1000. Sure you can arguing that you are building equity, but how much are you building? A renter can take that $1470 and invest in a portfolio which returns a very conservative 6% a year. Over 25 years, the renter would have well over $1million in his account. In the mean time, you condo will need to appreciate close to 6% as well to reach the $1 million mark. Traditionally house price appreciate little faster than inflation, so I think 6% over 25 years is a very tall order.

    Another issue is leverage. Real estate investment can give impressive returns because it’s highly leveraged. Unfortunately, with the possibility of massive returns, comes the risk of margin calls. And that’s essentially what happened in the states. If the renter is willing to take the same risks, he can potentially double his return rate to 12%, thus creating a fortune of close to 3 million dollars after 25 years. Who is building equity now?

    Of course, all these are hypothetical. Chances are people are still going to buy houses even if there’s no chance of building equity. It’s just our way of life. I am simply saying that without careful analysis, home ownership is not a great investment by default.

  • Archanfel March 17, 2009, 12:45 pm

    Just to add a point, the calculation I did above is not comprehensive. I didn’t take into account inflation (which house is a very good hedge against) or tax hikes (which house exposes owner to) or hyper inflation or market crash, etc… There are rent v.s. own calculator online that are probably better.

    However, I think if you do consider home ownership as an investment (I don’t), it’s very important for you to talk to a professional investment advisor (not sales people in the banks). Let he/she run the numbers, consider all kinds of scenarios. What if the market crashes, would you be able to secure a mortgage with negative equity? What if rate jumps in hyper inflation environment, can you still afford the payments? etc… For an investment, this is huge, so it pays to be prudent.

  • CanadianFinance March 17, 2009, 12:49 pm

    1, 2, and even 7 can be incentives for second time home buyers if their planning to upsize their home.

    I’m hoping to sell my townhouse (maybe today) and it will be at a loss of about $80,000 from the peak, but I’ll still make money on it. Right now the houses I’m looking at have dropped as much as $150,000 from the peak.

    So by selling and buying now instead of 2007 or 2008, I’ll come out ahead $20,000-$70,000.

    While it’s true that housing prices may drop further, I feel that’s enough of an improvement to warrant the move.

    Of course here in Edmonton, the prices were getting ridiculous to begin with!

  • mjw2005 March 17, 2009, 1:18 pm

    Archanfel….I love your comments and I agree with you 100%….Home ownership should not be viewed as a “no lose invesment” but instead as a lifestyle choice….

    If you want to own your shelter than buy it….but people are spoonfed to believe that you have to own your house or you are a fool….If you are good with your money then there are other investments that over the long term give you a better ROI….

    I always love listening to homeowners (like the lady who posted today) talk about how much money they made on there house, based on price increase alone….but they never take into account all the money they have spent to get there….on a $200,000 mortgage at 4% your spending around $8,000 a year in interest alone, plus property taxes and house maintenance. Then when you sell you have to pay a RE agent 3%, plus more lawyer fees, plus land transfer taxes….and on it goes….

    Home ownership is a great lifestyle choice if that is what you want or need….but Home ownership is not a no lose amazing investment. Home prices do go down and there are extra costs to home ownership.

  • Ray March 17, 2009, 1:22 pm

    Sampson: are you sure bns dropped 10yr rate to 5%??? I haven’t seen it or heard about it and I think it’s too low for a 10yr rate

  • Mark March 17, 2009, 1:33 pm


    I think we both mean the same thing but saying it differently. I agree as you said, it does pay to be prudent and to do your homework.

    The other thing I do agree with you is that home ownership is not an investment per se. If after doing your homework, owning comes out ahead, then its a right choice, thats what happened in my case.

    Love these blogs if only to get others’ view points – even if we don’t seem to agree with all of them… :)

  • wendy March 17, 2009, 1:43 pm

    Hi, is the Renovation Tax Credit available for primary residence only? Can it be used against a rental property?


  • Ms Save Money March 17, 2009, 2:21 pm

    Very true Ray and Nicolas,

    It is important to calculate and see if you have enough money to pay a big mortgage. I didn’t think of that.

    And I also agree with Archanfel – hold off on buying a house too soon.

  • Sarlock March 17, 2009, 2:21 pm

    We sold our home recently and cashed out. We’re renting a lovely place for far less per month than we’d pay to service a mortgage for the same property (and saving on property taxes, upkeep/maintenance, etc) and making a nice return on our invested home equity as well. After being a home owner for almost 15 years, it is kind of nice being able to call up the landlord to tell him that the washing machine is broken and he needs to fix it. It’s even nicer knowing I have more cash in the bank than he has in equity in the house I’m renting from him.

    I expect house prices to continue to decline over the next several years. It may not be as dramatic as in the US, but it will continue to slide downward and every home owner will be losing equity and renters will be financially rewarded. Interest rates are incredibly low right now, but I am growing increasingly fearful of huge inflation over the horizon. Beware the sucker’s mortgage where you max out your borrowing limit at a variable rate. It could kill you in the inflation (and interest rate rises) that is soon to come. Take your current mortgage and recalculate it at 10% interest. If you think you cannot manage a payment that high, your mortgage is too much.

  • Sampson March 17, 2009, 2:22 pm

    @ Ray, I haven’t spoken with anyone directly yet, but will be in the near term.

    – check out the fourth line item on the special offers. the online description is pretty straight forward but who knows if they have extra tricks up their sleeves.

    Maybe since they are hoarding borrowed cash at 0.5% they can afford to do so?

    I absolute agree with mjw2005, its a lifestyle choice. One can also argue about the financial merits of riding a bike vs. driving a car, but how many of us ride our bikes all the time? Clearly one option is ‘better’ – but pride of ownership, social status and all the other nasty psychological factors come into play. Maybe after this recession/depression, will have a resurgence of moving back in with our parents ;)

  • Bullseye March 17, 2009, 2:31 pm

    The housing market has just started to fall, probably won’t hit bottom for 2-3 years still. Low rates are helping to prevent a full out crash, but all that does is push the problem back. When the economy starts to recover, rates will rise to counter growing inflation, and it is then that house prices will start to get hit hard. That’s what happened last recession, house prices didn’t bottom until long after the economy bottomed.

    In most places in Canada, right now it is a great time to rent and save the difference. Then use your savings in a few years as a big downpayment on a house that is priced at historically normal levels.

  • Finance_Addict March 17, 2009, 2:55 pm

    I’m in the camp that doesn’t view my own home as an investment. Basically I agree with mjw2005 in that, here are way to many related costs to make it anything more than a nice place to live. However you still need to treat the purchase of your home like you would any other investment. So stuff like current and future interest rates, leverage (mortgage size), purchase price are important to how well you will sleep at night.

    I feel that both Kathryn and archanfel are right despite their opposing views of the current housing market. The key point I think is the discipline the buyer uses in their purchase decision. It’s discipline that will determine how exposed they will be to market and personal financial risk.

    I also feel that trying to time the housing market can be a very lengthy and time consuming process. Our strong earning years are too short to begin with to wait years for the perfect time to buy. Once you are ready to buy, simply match your expectations to your financial reality and it should work out fine.

  • Greg March 17, 2009, 3:19 pm

    It’s a horrible time to buy, we are just starting the downward cycle. This is especially true on the west coast here in Vancouver. The housing market does not work like the stock market. There are no 1 day 10% rallies that you need to worry about missing.

    In one of the housing blogs I recently saw a neat article roundup.
    -First time buyers driving the market
    (below was another link to an older article)
    2006 San Diego first time home buyers are driving the market.
    We all know how that ended up.

    It would be an outright crazy time to buy if you’re in the BC/Vancouver area especially, as it is currently one of the most overpriced in all of north america. It is also one of the fastest dropping. The low interest rates will not make up for the 10,000+/month value drop.

    One important thing for anyone trying to decide when/if to buy is to ignore 100% of the media coverage brought to you buy real estate boards, agents, or other strongly biased reports whose very existence relies on people buying houses. If you ask an agent, it’s always a great time to buy (read – always a great time for them to get paid). The real estate business seems to have a lot of good ins in the major publications, I often see some articles quoting ReMax or Royal Le Page. If you believe any of those, why not ask a car dealer if he thinks you should buy a car :)

    I don’t know if links are allowed here, but would like to direct you to just one specific article – there are many blogs which cover the housing insanity (these are west coast Vancouver based where the bubble has been the biggest):

    Full disclosure – I currently own a house (bought in 2004) and while technically it’s nice to have a house worth lots, I’m a firm believer that prices have a LONG way to drop. I don’t know when they will bottom, but all the flippers here are waiting and hoping for a spring bounce. The market will be going down all year long. Wait till the end of the year, see where things are at. You will save money on waiting, even if you’re renting now.

  • AndyOtt March 17, 2009, 3:49 pm

    Archanfel…your numbers are unrealistic. Rentals in Toronto are more in the 1200-1600+/month range. You also assume in your calculations that rent will remain $1000/month for the next 25 years…huge flaw in your calculation IMO. Average ret goes up 3-5%/year I believe. In theory at the end of the 25 years you would be paying ~$5000 rent/month for the same condo.

    Also you bring up the condo fee’s. In your $1000 there’s no way that includes hydro, water, heat etc which you have to factor in to offset the condo fee. Also the rate of 7.15% is off as some other posers have stated you can now get a 10 yr fixed at 5.25%.

    If you make the changes to your numbers I think you will find that buying vs renting is better in the long run. IMO renting is simply paying off somebody elses money so may as well have something to show for your money at the ed of the day.

  • Renter March 17, 2009, 4:30 pm

    AndyOtt: My rent includes heat and hot water and I pay only $15 a month for electricity. Also, condo fees don’t cover utilities. When you own, there are just so many extra costs on top of your mortgage payments. You also say you have “something to show” when you buy. If you rent, you have money to show for it. It’s cold hard cash that you can spend compared to equity in your house that’s locked up until the day you decide to downsize.

    As many people have posted earlier, buying is not a good investment. There are good reasons to buy but it’s not for the financial payoff.

  • Sarlock March 17, 2009, 4:53 pm

    With the large number of rental units coming on to the market, there is a lot of competition in rental rates and the prices are dropping considerably, especially in markets like Vancouver and Toronto where so much excess housing was produced (especially condos). There are a lot of “accidental landlords” entering the market who cannot sell their acquisitions and are instead choosing to rent to recover a portion of their monthly mortgage costs.

  • Sarlock March 17, 2009, 5:04 pm

    The house we are renting right now was on the market for $575,000 (in Vancouver, this is an average house price). We are renting it for only $2,100 per month.

    If I were to buy this house with a 4% mortgage, it would cost $1,900 per month in interest for the interest part of the mortgage.

    Add to that $400/mo for property taxes, $400/mo for maintenance ($5,000/yr) and we’re at $2,700 per month.

    In order to break even with renting, mortgage payments would have to be $1,300 per month in interest. This equates to a house price of $400,000.

    This doesn’t include any potential house price loss or include selling costs if and when we decide to move.

    As I see it, until house prices drop in to this rent/buy range, it’s more financially beneficial for our family to rent than to buy.

    Gone are the days of seeing your house as an appreciating asset. Land generally appreciates in price due to higher demand but houses depreciate over time. We’ve experienced a once in a generation or two housing bubble that may require us to wait a decade or more for prices to return to where they were before the decline. As such, housing is a losing investment for the next 10 years. Rent instead, save your money. Let someone else take the equity hit.

  • Sampson March 17, 2009, 5:07 pm

    Its happening in Calgary too. I had to drop the rent on my rental this year – how can you compete with brand new (poorly built) condos going for $200-$300 below the market average?

    I think Kathryn’s original argument was not that its a great time to buy as an investment but whether the larger economic forces have made now a favorable time to buy a home.

    The argument of whether you come out ahead by renting or owning will always exist. The flaw I find with being pro-renting is that people always compare the amount invested in the home to equivalent money in equity markets. I don’t think many people will argue that equity markets are not the top yielding investments historically, but would you same detractors put up as fierce an argument against bond holders? Real estate (whether your own home or rental) can be a great way to diversify your overall portfolio.

    BTW, did I get insulted somewhere – you can poke fun at my knowledge but don’t call me a poser ;)

  • Archanfel March 17, 2009, 5:46 pm


    $1000/month including utilities/AC/parking for a one bedroom is doable even in downtown Toronto. Granted, it’s not going to be big, but that’s what you get from downtown living. I think I found a bachelor for $600 including utilities, but I am not sure Sherborne and Dundas is the best of the neighbourhoods. In places like Scarborough, you can get fairly large 2 bedrooms for around $1000 including utilities. Again, it is not going to be up to Condo standard (AC would be hard to find), but it serves its purpose. For $1500 without utilities, I can get a house. On the lower end, I can pay $500 for a master bedroom and be perfectly happy with it. Free high speed Internet and cable TV too. I know somebody who pays $200 for a basement room.

    You actually brought up a very good point. It’s almost impossible for condo to compete against a $200 room, yet the $200 room would serve a single person just fine. As circumstances change, a renter can move from a basement room to a master bedroom to a bachelor to a one bedroom apartment to a two bedroom apartment to a townhouse to a penthouse by the lake to a house on bridlepath. Owning requires a fair amount foresight and overspending unless you want to pay agent fees and taxes every two years. This is more of a life style issue than a financial issue, but I think renting provides great financial flexibility and really helps to build the first investment portfolio (or a beer belly due to excess drinking :) ).

    As for inflation, yes, renting will be subject to inflation as I pointed out in my subsequent post, but so is owning. Property taxes goes up much faster than inflation (if you got Miller as your mayor), condo fee usually goes up faster than inflation as well. Not to mention major repairs might require additional payment. BC leaking condos is a good lesson.

    Mortgage is more debatable. You can lock in for a 10 year rate, but remember, banks are not stupid. You can only get the rate that is profitable to the banks based on their inflation predictions. Therefore, you can hedge against inflation, but you will still be paying for it, probably at a premium as well for the peace of mind.

    As for the rate, I simply got it from the post above, I didn’t see the other post when I posted mine. I am not sure how much I trust these “special offers”, but if you want to use 5.25% I think it will lower the renter’s portfolio to $800K instead of $1million.

    All I am saying is that you need to do your own analysis. Too many people have the perception that “renting is paying off somebody else’s mortgage”, that is simply not always the case. Assess your own situation and crunch the numbers, if you still think owning will come out ahead, then go ahead, but don’t take that as a given.

  • Archanfel March 17, 2009, 5:57 pm

    Oh, just to make another point (I wish I can edit postings), buying a house is great for forced saving. We can talk about investment returns all we want, the reality is most people will spend every cent they got (or if they were like me, they would waste every cent on Nortel stocks) It would be a lot harder when they are forced to pay a heavy mortgage, thus building equities which would have been spent anyway. Therefore, one important thing in the assessment is to know how disciplined you are. Can you stick to a dollar cost average schedule on boring index funds? Can you make sure you rebalance every year no matter how hot or hopeless the market is? If not, then buying a house will not be the worst thing you could do.

  • Jeff March 17, 2009, 9:34 pm

    I agree with Bullseye. I’m thinking that these historically low interest rates are going to have a bad impact on future house prices. Since most people need to borrow to buy a house, the price of a house is largely driven by the monthly payment required to carry the mortgage, which is largely affected by the interest rate.

    Most believe that we are likely to see higher than normal inflation once the economy recovers (due to all the spending and stimulus), and with higher inflation comes higher interest rates to fight that inflation.

    As long as people are losing jobs and the economy is contracting, house prices are going to keep falling. The problem is that as the economy recovers, houses are going to become more expensive even if the actual prices don’t change, due to higher interest rates. Once the prices have finished correcting (whenever that is), longer term house prices are not likely to go up much until the pending inflation is brought under control. So the best time to buy a house would probably be near the peak of the future inflation, so your house appreciates as the interest rates fall and houses become more affordable again.

  • jesse March 17, 2009, 9:40 pm

    If you buy now you require a great many things to go right. Wait 2-3 years. The chances of prices being higher are close to zero. The chances of prices being lower are not insignificant.

    The interest rate thing is a red herring. The old Joe Howmuchamonth approach. Maybe this approach will work but there are risks, you know, that darn “R” word people are throwing around these days.

  • Kathryn March 17, 2009, 9:53 pm

    Great comments everyone. Interesting discussion on the value of renting vs. home ownership.

    I agree the calculations can change quickly when it’s more than a one bedroom rental that is needed. When we did the math, for a 3 bedroom apartment or house (my husband and I and our two pre-teen kids – one boy & one girl), it was less for us to buy, including the property tax and upkeep. For a smaller family or single person, the calculations may come out differently.

    It also appears there are huge difference in the housing market from coast to coast. It sounds like a house in Vancouver is out of most people’s league.

  • Agape March 17, 2009, 11:37 pm

    My wife and I rent, as I still have a year left on my master’s studies. My rent is quite cheap for a 2 bedroom apartment.

    If I pay for utilities, property taxes and other expenses that don’t add to the value of a home (not to mention the house trap… the desire to fill more space), I think I can make up my rent costs. Additionally my landlord is great!

    Originally my wife wanted a house just like her parents, but after a showing her how much a 25 year mortgage would cost in interest and after a perspective changing trip to Guatemala we’ve decided to keep on renting and save as though we were paying a mortgage.

    We are looking to maximize our rrsp’s through a credit union savings account for the homebuyer’s plan and void of space there, we’ll look to tfsa’s.

    We’ve come to the decision that we will buy when it is right for us, not when we think the market is at the most optimal spot. Pay yourself rather than the banks.

  • Sarlock March 17, 2009, 11:38 pm

    It’s amazing that people even buy houses in Vancouver for the prices they are demanding… but, since it has always been more expensive here, I guess you just learn to live with it.

  • archanfel March 17, 2009, 11:42 pm

    Kathryn, I don’t think the calculation changes at all. In Toronto, you can rent a 3 bedroom house or apartment for less than $2000 almost everywhere. Maintenance usually cost 1-2% of the house value per year in the long term. Property tax is about 1%. Therefore, even at 5.25%, the price of the house has to be less than $250,000 to get a positive cash flow, which is pretty hard to find in Toronto. In 1989, I would agree with you. Right now, not so much.

    Of course, the market is different in different cities. Would you mind sharing your math?

  • personal finance deals March 18, 2009, 8:29 am

    I am considering moving out of my house (I am a second year college student) and having about 3 other people living with me. I was always taught that it is not wise to rent out a living space b/c you will be throwing away your money and to instead look into something that you will be putting money into to own. So I was looking online and noticed that there are different options to search for: homes for sale, new homes, and forclosures. What is the difference between buying a forclosure and a regular house on the market?

  • Bullseye March 18, 2009, 8:41 am

    pfdeals – you can throw away money on rent, or you can throw it away on mortgage interest, either way, someone else is getting it. If all factors considered, renting and saving the difference is cheaper, then you are just throwing away less money than you would if you bought instead.

  • Kathryn March 18, 2009, 8:50 am

    Math on our mortgage:
    Our mortgage payment is $350 (3 bedroom 1000 sq foot semi in a city of less then 100,000). Our property tax is $205. We put $100 a month into a house maintenance fund. (The house is less than 10 years old and hasn’t needed a lot of work so far). Our monthly housing costs are $655 not including utilities which we would pay if we rented. 3 bedroom houses of a similar size rent for $1200-$1400 around here. We also used $16,000 as a down payment from our RRSP through the HBP.

    The issue we are wrestling with is whether to

    a) sell our house and buy one in Toronto (taking on a bigger mortgage and a smaller house),

    b) sell our house and rent in Toronto, using the equity we’ve built to help supplement the rent or

    c) stay here and have Brian rent a room in a house in Toronto to stay at during the week and come home on weekends. (It’s too far to commute every day.)

  • Kathryn March 18, 2009, 9:13 am

    I should add that we had saved for a down payment large enough to avoid the CMHC insurance. I don’t calculate that in our monthly costs but it’s there if we sold it. We bought it for well under $200,000 in 2004.

  • DavidV March 18, 2009, 10:12 am

    I wonder how the calculations change if you rent out part of the house. Ultimately, I guess if you believe the market will drop 20% in the next few years, it wouldn’t make much sense to buy. But if you can get $800-1000 in rent for a basement apartment, you may start to swing some calculations towards owning.

  • Archanfel March 18, 2009, 10:22 am

    Kathryn, there are a couple of problems with your math (although I agree with your conclusion).

    1. You need to calculate as if you were 100% financing, but don’t count the CMHC cost. The reason is the renter will be able to invest the down payment instead. Smith Maneuver makes this calculation all that much harder, so let’s not get into that for now.

    2. I am not sure what interest rate you are using. Even if your mortgage is only $150,000, at 1% over 35 years would have a monthly payment of $379/month. In any case, I am assuming that you are paying a very low variable interest. You can’t use that rate to do the math since the rate is not sustainable. You should use a 10 year fixed rate (a 25 years fixed rate would be better, but it’s probably hard to find) for the calculation. If you got lucky and ended up paying less, then great, but you can’t assume that during your initial planning.

    In your case, where house price is very cheap yet rent is close to Toronto (very likely for a small town since the rental market is so small), I’d say it make sense to buy, but I still doubt the owner would get positive cash flow (he/she wouldn’t need it to justify buying).

  • Bullseye March 18, 2009, 10:23 am

    Kathryn – ‘Our mortgage payment is $350’

    Your actual mortgage payment is affected by a variety of factors, such as your downpayment, amortization, rate, etc. Your payment ingores the opportunity cost of your downpayment and equity, so it’s essential useless for rent vs buy calculations. A better figure to use is interest cost on the total current value of your house.

    So if your house is worth $250k, and you use 4% as your interest, your monthly cost is $833. Add $305 for your taxes and maintenance, maybe another $100 for long term large repairs such as roof, furnace, etc. Your monthly cost is now $1,240, right in the range of rent for your area. That would lead us to believe that your area is probably fairly priced, which would make it a rarity these days.

    Can I ask what area it is you’re in? Must be at least an hour from Toronto?

  • Bullseye March 18, 2009, 10:26 am

    Posted at the same time as Archanfel, some duplicate info there…

  • Archanfel March 18, 2009, 10:37 am

    DavidV, that would greatly complicate things since you would essentially be living in a shared accommodation, which lowers the potential rent savings. Even if the basement has separate entrance, a house is not designed to be internally sound proof. I can still hear the couple downstairs in my head. :)

    I would imagine from the financial side, it would make buying more attractive, but it comes with the hassles of being a landlord. Not to mention potential damage to the house. I used to live in a basement. The shower was leaking and water would get into the wall. I didn’t really care although I did tell the landlord, he didn’t do anything either since he was selling the house soon. Personally, I wouldn’t do it, but that’s probably because I am lazy. :)

  • DAvid March 18, 2009, 11:47 am

    I’m guessing Kathryn’s mortgage payment is an accelerated bi-weekly payment, not monthly. This would allow her to carry a mortgage of about $135,000, which fits with her other numbers. If instead we consider a monthly payment , that would support a $66,000 mortgage, far below the price she suggests they paid for the house. For me, this throws her whole argument into question, as the numbers she describes lead to an inaccurate conclusion.

    Also, in many small towns there are fewer opportunities to rent, so a house purchase is often the only real option, and the prices reflect that reality.


  • Kathryn March 18, 2009, 12:29 pm

    My personal example isn’t a good one to use because of our unusual circumstances but if anyone else would like to share their details here, it might make for a better argument.

    We pay 3% fixed rate (offered to us privately because of our line of work … long story but not available to ordinary Canadians .. which is why my example isn’t a good one to use).

    We also lived overseas for nearly 5 years where we paid $70 a month in rent and were able to save for a large down payment.

    We live in a medium sized town where in 2004 places like ours were going for $125,000 – $175,000.

    It’s a little less than 2 hours from Toronto … which is why it’s too long of a commute.

    The question wasn’t whether it’s a good time for Kathryn to buy a house, but rather for those who are looking at purchasing a home, is this a good time to buy?

    Anyone else want to share their specific figures here?

  • Bullseye March 18, 2009, 1:03 pm

    Here’s my area, Burlington (west GTA).

    House current value – $350k
    Equivalent rent for similar – $1700-1900/month

    Interest on $350k at 5% – $1458/month
    Property taxes – $250
    Maint and repair – $250

    So at 5%, owning here is only slightly higher than renting. But 5% is quite low compared to average historical rates. The 4% rates available now are even more unusual. They won’t last the life of your mortgage (no 25 year terms), hence my argument that when the economy starts to recover, and rates go up, house prices will then start to fall faster. At 6%, renting is clearly better.

    Keep in mind this is the outskirts of the GTA, prices here never went up at crazy rates like they did in Toronto or closer areas. In Toronto, renting is still the clear winner in every area I’ve looked at.

    Historically, it’s usually been a fair bit cheaper to own than to rent, so this period is an anomaly. Prices will likely return to a level where the advantage is clearly in favour of owning, they might even swing past that temporarily.

    You’ll notice that I own a home, even while I’m here saying that renting would be cheaper. That’s because we are established in our home, and don’t want to play market timing games, selling to rent for a couple years, then buying again. If we were first time buyers, though, we would not be buying currently.

  • MultifolDreams March 18, 2009, 11:51 pm

    In my area in Montreal there renting is beating buying almost in any case. My mortgage + taxes will be double of what I’m paying for rent.

    Next year there will be even better buy opportunities

  • Ed Rempel March 19, 2009, 1:30 am

    Hi Bullseye & Archanfel,

    There are areas like condos in Toronto where renting is clearly better than owning. We have quite a few clients with a rental condo in Toronto. Nearly all are paying $4-500/month or more out of their pocket, because the rent does not cover the mortgage, property taxes and condo fees.

    I you own a condo in Toronto and your neighbour rents an identical condo, you are paying $4-500/month more, plus you are making nothing on your down payment and you have to pay all your own maintenance.

    Normally, renting and owning are relatively close. In Toronto condos, either the rent must go up or the condo prices must come down.


  • Ed Rempel March 19, 2009, 1:48 am

    Our advice to home buyers:

    1. Always have 20% down. The CMHC fee is very high with no benefit for you.
    2. Only buy a home if you will be comfortable living there at least 5 years. You likely won’t make anything in less than 5 years once you consider real estate commissions, legal fees, the cost of moving, and the cost of fixing up a place to your taste. It is better to wait a bit longer and buy the home you really want.
    3. Do not get caught in the “5-Year Mortgage Trap”. Variable or 1-year rates almost always save you thousands over any longer tem mortgage. High interest rates like they had in the 80s will not come back. We have recommended variable or year rates for 15 years. With the discounts available, our clients have been between 4-5% almost all of the last 15 years. There were short periods with rates as high as 5.4% and as low as 1.65% now (which you can’t get on a new mortgage).
    4. Never lock in a mortgage longer than you expect to live in a house. “Porting” a mortgage and”blend and extend” are bad deals for you and good deals for the bank, because any addition to the mortgage is at posted rate.
    5. Don’t take cash back, since you only get it if you pay more than that amount by locking in a long term mortgage at stupidly high rates.
    6. Shop around to find out what discounts on mortgage rates are available and never take the posted rate or renew a mortgage at the posted rate.
    7. Just because you qualify for a mortgage does not mean it is smart to take it. Don’t forget your long term goals and your lifestyle.
    8. Don’t fall in love with a house. Look for a good deal, not the perfect house. A good deal is either a house you can get at a great price (for many posible reasons) or one that has tons of upgrades that add little to the value of a house.
    9. Renovations are not investments. Unless you do all the work yourself, most renovations only add a portion of the cost to the value of the home.
    10. Don’t be a landlord for the prestige. Renting is profitable in your basement or older, multi-unit properties (live in 1 and rent the rest), but is usually not profitable renting newer homes entirely or condos.


  • Kathryn March 19, 2009, 8:39 am

    If it’s about equal or a little more to buy, wouldn’t it make more sense to buy since one day it will be paid for? I see owning as part of my retirement plan. It’s my goal that by 55 (I started late) the house will be paid for and I’ll only be paying property tax and maintenance. If I hadn’t bought, then I’d be paying rent all my life.

  • Archanfel March 19, 2009, 9:14 am

    Kathryn, you are still not getting the point. Even after you paid off your mortgage, the cost of owning does not change. The bulk of the costs are opportunity cost associated with the equity tied up in the house. Why does bank charge you an interest for your mortgage? It’s because they would have been able to invest that money in the market and make money. After your mortgage is paid off, you are essentially lending money from your investment portfolio to yourself and you should essentially charge the same interests from yourself, thus the situation does not change. Unfortunately, historically house price appreciate with inflation (the inflation adjusted chart for US house price is fairly flat until 2000 and it spiked to 2007 and we all know what happened after that), thus under perform the market significantly. FT posted an analysis of the 30 year rolling real return over the last 60 years. The lowest return was 4.32% from 1960 to 1990, the highest was 7.93% from 1976 to 2006. I would think 4% is a safe number. Therefore, in exchange for not paying rent, you are losing 4% of your potential net worth every year. By the time you are 55, it should be a very significant amount.

    Another way of looking at buying a house is to develop a split personality (not literally :) ). First look at the house from a renter’s perspective, how much would I pay to rent this house. The look at the house from an investor perspective, does it make sense to buy this house to rent to this very nice lady. Only buy the house if it satisfies both the renter inside you and investor inside you. As you can see, the renter will never stop paying rent anyway since the investor will always need to be satisfied with the rent and house appreciation or she would sell and invest in something else.

    Of course, here is Canada, so everything centers around taxes. Owning a house is very tax efficient for retired people. That’s why I plan to buy a house when I am 55, use 10 years to suck my RRSP dry and pay off the mortgage. Then live in a beautiful home with all my investment hiding in my TFSA or index equity fund (which is not taxed until you sell), draw OAS and possibly GIS as well. Well, we can always dream. :)

  • DAvid March 19, 2009, 11:44 am

    Ed Rempel said: “Always have 20% down. The CMHC fee is very high with no benefit for you.”

    I have to disagree on this one Ed! There are times when paying the CMHC fee makes sense — when the inflationary cost of housing exceeds the the fees or the ability to save, but the individual has the financial ability to pay the mortgage. For instance, in the past six years, houses in our neighbourhood have increased 120% in value. Had we rented, instead of purchasing, we would have been shut out of the market in short order, as we could not afford the additional 15% or more per year in additional mortgage costs to purchase the ever increasing house price.


  • Archanfel March 19, 2009, 12:40 pm

    David, 6 years is nothing in the housing market. The boom and bust cycle can run 10-20 years.

    Here is a chart of inflation adjusted house price for the US from 1890 to 2008. http://mysite.verizon.net/vzeqrguz/housingbubble/united_states_1890-2008.png. As you can see, from the late 90s to 2007, US house price jumped from less than $150,000 to close to $275,000. Well, what happened in 2008? I think it can be safely assumed that the price will drop back to the $150,000 range if the government hasn’t shameless intervened. Inflation is simply not that high right now and there’s no reason to believe there’s such thing as “inflationary cost of housing” on top of normal inflation.

    Of course, there are always exceptions in local market, oil field could be found, there might be a gold mine under the town, market could have overshot to the down side due to extraordinary circumstances (Quebec in 1995 for example). In that case, I would agree with you.

  • CanadianFinance March 19, 2009, 2:47 pm

    Ed Rempel,

    I would have agreed with you a year ago about going with variable over a 5 year fixed mortgage. However, I think right now there’s a strong argument that a 5 year fixed is the way to go. With variables being above prime now, the gap is closing between variable and fixed.

    I wrote more about this last week…

  • Ms Save Money March 19, 2009, 7:07 pm

    @ Bullseye, how are u so sure that the home prices will hit rock bottom in 2 or 3 years?

  • mojo30 March 19, 2009, 8:19 pm

    buying a house based on interest rates is ludicrious..with all the cheap money in the market and stimulus money we will have an inflation problem sometime in the next few years. And there is only one way to fix that, high interest. There are alot of people currently who are just making it monthly with the current rates, what happens when they tack on another 3%+..and yes..it can and will most likely happen sometime in the near future.

    Everyone has to live somewhere..so the proper way of buying is if the ownership is pretty close to what it would cost to rent. In the last few years I have seen friends buy property that is 3x times what their rent was and now they are living on bread and water just to keep afloat..too many people follow the herd and get burned..buy if you can afford it without it eating up 50%+ of your monthly income. There is no proper model on home purchase, besides mortgage there are alot more thngs involved in home ownership..people need to consider it all before they buy..just because Tom and Dick bought..it dosent mean that Harry can also.

    my 2 cents..thanks for reading.

    Good points Ed!! I agree with all

  • Ed Rempel March 19, 2009, 8:58 pm

    Hi Canaidan Finance,

    Where do you get a 5-year fixed at 4.15%? Even with that rate, though, it always seems to take a lot of big assumptions for a 5-year rate to possibly keep up with variable.

    Today, you would save at least 1.25% with a variable over a 5-year mortgage for probably 1/3 of that 5-year period. And there is a good possibility of another .25% rate cut to come. To be even, the variable would then have to go up to about 5% and stay there for the following 3-4 years.

    We have been recommending variable mortgages (or 1-year fixed) since the mid-90s, and there have been only a few relatively short periods where the discounted variable rate was as high as 5%.

    One study I saw from a mortgage broker showed that five 1-year mortgages would have been cheaper than one 5-year mortgage 100% of the time since 1950. Variable mortgages would also have almost always saved money.

    To take a 5-year mortgage now means you lose money unless rates rise 3-4% and stay that high for 3-4 years. Anything less, and the “5-year mortgage trap” will have lost you money again.

    Also, the variable above prime will likely return to a normal variable rate below prime once the credit crisis ends. Prime will go up at some point, but variable mortgages will likely return to below prime as well.


  • Ed Rempel March 19, 2009, 9:05 pm

    Hi DAvid,

    There are often extra steps buyers can take to get the 20% down, such as an RRSP loan to withdraw under the Home Buyers’ Plan, getting an unsecured credit line, or financing it in some other way. The extra financing costs are tiny compared to CMHC fees.

    Your situation of 120% growth in homes in 6 years is extremely rare and usually would only happen before a real estate crash, as Archanfel pointed out. Real estate historically grows only a bit over inflation It has grown 2% over inflation in the last 30 years in Toronto, which includes 2 big booms.


  • DAvid March 19, 2009, 10:42 pm

    But Ed, all those options depend on the ability to obtain that extra financing. In instances where those options are not available, and prices are increasing fast enough, it may make more sense to pay the 2.75% premium than watch house prices increase by 5% (or more) before you can effect a purchase.

    I fully agree that the increases in housing prices as I described is rare. I don’t expect it to continue, and am waiting for the fall, however, I could not afford to enter today’s market, and am very happy I do not have to do so.

    Archanfel, I do not expect this trend to continue. I believe our neck of the woods played “catch up”, and we were fortunate to arrive at the time in the cycle we did. My point was that given the increase in housing costs our community has experienced, we could not afford to enter today’s market. I don’t really see the increase in costs as having any real benefit, as it has just made our community inaccessible to many potential residents.


  • archanfel March 20, 2009, 12:30 am

    DAvid, why would you want to enter today’s market if the market is unbalanced? Is there any reason that you find renting unbearable?

  • DAvid March 20, 2009, 10:49 pm

    There is about a 0.1% vacancy rate in our area just now, what is available is of poorer quality, or very pricey. Rental costs are comparable to mortgages, ifyou can find a suitable place.

    The rapid increase in housing costs over the past few years has far exceeded the increase in salaries, making an area that was affordable to families with an average income, unaffordable. Most folks who move here need to find a place to live in short order, and while there is a considerable selection available, it is not cheap, nor available for rent.

    While house values have dropped across much of the country, our neck of the woods has been insulated from that drop, and saw a modest increase in value of about 2.8% between Jan. 2008 and Jan. 2009. While volume is down, much to the disappointment of local Realtors, prices are up.

    Thus, it’s not that renting is unbearable (ask our tenant) its simply not available!


  • pacific March 21, 2009, 10:39 am

    16. mjw2005
    “I always love listening to homeowners (like the lady who posted today) talk about how much money they made on there house, based on price increase alone….but they never take into account all the money they have spent to get there….on a $200,000 mortgage at 4% your spending around $8,000 a year in interest alone, plus property taxes and house maintenance. Then when you sell you have to pay a RE agent 3%, plus more lawyer fees, plus land transfer taxes….and on it goes….”

    Try renting a decent place for less then 8000 a year.

  • john March 22, 2009, 4:32 pm

    It’s a good time to buy if you like losing lots of money month after month for the next two or three years. It’s an even better time if you like the idea paying twice or more on your monthly mortgage payment in a few years when interest rates shoot up.

    The best time to buy is when the house you want is either:
    1) Cheaper than rent
    2) Is 3 times your annual income

    In either case use 25 year amortization and a 25% downpayment otherwise you have no business owning a home.

  • Dwight March 23, 2009, 11:25 pm

    I am currently in a tough situation, i live in ottawa where house prices have generally not been effected at all, they have stopped rising but are definatley not going down. I am young, recently married and a would be first time home buyer, i am currently renting and am having a hard time convincing my wife that continuing to rent is by far the best option for us right now. we pay roughly 1000/mth in rent, weve worked hard to erase student debts, our car is paid off and we both have decent jobs. right now we are able to save 1-2 thousand a month, but our savings is just starting to build, at around 20 G’s now (mostly in RRSP’s), how can i convince her that continuing to save for say another year would save us huge in the long run, especially with house prices still at an avg of 325,000 for a bungalow. shes so set on buying a house, it has been the topic of many arguments, and now that weve gotten a dog, “we NEED a yard”……..i enjoy reading these posts and would appreciate any help on my own million dollar journey.

  • FT FrugalTrader March 24, 2009, 8:37 am

    Dwight, there is no right answer to your predicament. If your wife is dead set on purchasing a house, perhaps you can sit down together and see what the costs would be relative to renting. Once it’s on paper, it’s easy to see if you can afford the payments or if the extra costs will affect your lifestyle.

    Here are some mortgage/rent calculators to try:

  • DAvid March 24, 2009, 11:55 am

    Have a look at any of the ‘Rent vs. Own’ calculators on the web as well.

    A house can be a millstone. There are times when renting is the best choice, and times when owning is the best choice. Do your research before jumping in to the ownership muddle.

    Having a dog in a yardless apartment does increase the labour (unless you can teach it to flush…..)


  • Elbyron March 24, 2009, 12:08 pm

    “A house can be a millstone”

    Lol, this is one of the funnier typos I’ve seen lately. It made me want to go and find an appropriate photo. This is the best I could find: http://www.letheringsettwatermill.co.uk/images-temp/Millstones-lift-27.jpg

    “teach it to flush”

  • DAvid March 24, 2009, 4:00 pm

    Actually, this millstone is the one I was referencing.


  • J. March 24, 2009, 7:21 pm

    I have a couple of newbie questions, which I hope somebody could answer:

    – If (as somebody said above) we can’t rely on information from real estate agents (because they are interested in selling), where do I go to get reliable information on real estate market trend and assess if the market looks fair/overprices/underpriced?
    – Where do you go to gather information on neighborhoods? I’m new to town, and I have been talking to some people to get there opinions on different neighborhood, but I’m thinking there must be some more systematic information somewhere. Also, when you “scout” neighborhood, what exactly are you supposed to look for?

    Right now I’m happy with renting (The rent + all utilities consume 13% of my gross), and I hope I can save enough for a good chunk of down payment when my time comes.

  • DAvid March 24, 2009, 10:17 pm

    Your bank or better yet, Credit Union might be able to answer questions on market trends and pricing / value.

    Start with a Realtor for information on neighbourhoods, then corroborate it yourself by spending some time there, to determine if it meets your needs. Folk usually look at available amenities (Shops, and other services), recreational facilities & parks, access to transit or reasonable commute, schools, age demographics, etc. Once you have narrowed it down some, walk around, talk to the folks who live & work there, read local (neighbourhood) papers.

    Since you are renting (I’m envious of your low costs), you have some time to test drive a few neighbourhoods to see how they feel. Go out and poke around as though you were living there, spend some time & money in the shops, wander the streets, talk to the folks doing garden work. You should get a good feel for things in short order.

    Another option if you are a member of a Service Club is to ask your fellow members. The folk you will meet in most such clubs will usually offer their unbiased opinion. If you join an organization with many local clubs (eg. there are often a number of Rotary Clubs in any given area) you can often find information about the local scene that might be unavailable through other avenues.

    Hope this gives you a starting point.


  • Alexandra March 25, 2009, 3:44 pm

    My husband handles the finances in our family, and when we bought our Toronto house last year, he insisted on paying as little in terms of down payment as possible. We have a 40 year mortgage. He wanted to invest the difference (we could have afforded to pay way more down). He also wants to use the interest we pay on the mortgage as a tax write-off since he has a large home office (w/ it’s own bathroom, basically 25% of our living space) and we also have a renter in a basement apartment.

    Does this make financial sense, or should I be insisting that we pay down some of our mortgage? We currently owe $550k in mortage (we both make about 100k each). He does tend to be more of a risk taker than I am, but this has served us well in the past ;-)

    Thanks for any answers.

  • J. March 29, 2009, 11:20 am

    Thanks, DAvid.

  • Voice_of_Reason April 2, 2009, 4:37 pm

    I read this post and finally decided to reply for the very first time on this site. I currently rent in Toronto and am in the market to buy a condo. I have seen a lot of arbitrary arguments and comments so far. Here are some of the facts, since I have very raw data.

    archanfel, Ed Rempel,
    I am going to challenge your numbers a bit.

    My friend was just approved for a 4% 5 yr fixed mortgage with Scotia bank. On a 250K mortgage, using a 25 yr, the monthly principal+interest payments are ~$1300. Average property tax is $100-150/month for 1 bedroom condo downtown. Average condo fees (the ones I have seen anyway) including Hydro are $250-300. If you do the math: 1300+150+300=$1750. Since I have done the research, in the same building where I’d want to buy, I can rent for approx $1450-1500/month. Based on this you can buy a condo with an additional $250/month on top of your rent.
    Assumptions: 20% down to avoid the CMHC charges, 4% 5 yr fixed (although, my friend has informed me that some other institutions are offering as low as 3.82% for the same product which would bring the P+I payment down to $1270/month).

    The lower interest rates make a HUGE difference, you can’t discount this fact. Buying due to lower interest rates DOES make sense (see the math above). Mind you, this rate is only locked for 5 yrs, after the 5 yrs I’d personally go for a variable mortgage rate, at which point time the sub-prime variable rates will likely return. The ONLY reason I would even consider touching the 5-yr fixed is due to the historically low rate compared to variable. You’d have to have completely lost your mind to lock into anything more than 5 years.

    Some of the numbers you used for interest rates are either out of date or are not representative of the best rate you can get these days. Eventhough I believe that condo/house prices may yet drop further, you will see substantial savings through lower rates. Moreover, Toronto is not Calgary and Vancouver. The house/condo increases in Toronto have been more steady and based on sound market economics. I would not be buying into the Calgary, Edmonton or Vancouver bubble. (See the CMHC average house price increase over the last 30 years for various Canadian cities). Also, Toronto is home to 100,000 new immigrants every year, the most in the country. The demand for housing should remain for the forseeable future.

  • Victor May 22, 2009, 6:44 am

    A quick question for the lot of you: I live in Ontario and I bought my first home in January 2007. I chose to use the Homebuyer’s Plan offered by the government to finance part of my downpayment.

    As I understand it, I should have received papers from the government telling me how much to pay back and when to pay it back.

    It is now May 2009 and I have received nothing.

    Can anyone comment? Thanks!

  • Coop May 22, 2009, 5:58 pm

    My husband and I are first time “contemplating” home buyers. We have been renting here in a small town in Alberta for 6 years and have seen our rent increase from $415/mth to $815 a month (not including power) for a one bedroom. We are told due to the nature of my husband’s employement we can get a 3% interest rate, we have $10,000 for down payment and both have secure employment in the emergency services (gross family income $110,00). After reading all of these posts I am more confused than before. This is a scary venture for us and are currently looking at houses around $200,000-$220,000. We don’t want to continue to throw our money into somebody elses morgage by paying rent, yet we plan to relocate in about 2 years from now. I would love feedback from anyone about wether this is a good time for us to buy. Thanks

  • DAvid May 23, 2009, 2:19 pm

    The usual advice is to rent for short periods. Here are some numbers:

    A mortgage of $210,000 at 3% over 25 years would be about $993/ mo. plus all utilities and municipal taxes.
    In two years, you would have about $12,000 in equity, plus what ever the price of the house increased
    You will have closing costs on your house.
    Realtor fees in two years would be about 6% or $13,200.
    Plus you may have to wait to sell when you want to leave.

    If you put the difference between your rent, and your housing costs into a TFSA ($178 on mortgage + $150 for utilities & taxes) plus what ever you estimate closing costs and moving costs to be (say $5000), you could have an additional $13,000 to add to your down payment savings in two years.

    In my opinion, unless you expect the house you buy to increase by 15% or more in the next two years, renting is the more cost effective option.


  • Coop May 24, 2009, 1:29 am

    Thank you very much for your wise advice David. My husband and I discussed something very similar last night and decided that its best for us to wait two more years, pay off all of our debts (my student loan(from obtaining my Masters Degree)C and a little bit of his own debt) together over the next two years while putting in money to add to our down payment for a house in a couple of years. This way we will be debt free when we enter into our house purchase with a nicer down payment. Just means we have to get through another two years in a very materialistic town in Alberta with “big oil money” as the odd ones who continue to rent. But with a long term plan this is the best option for us. Thank you for breaking down some numbers for us. Best regards,

  • Coop May 24, 2009, 1:33 am

    Thank you!

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