How First Time Home Buyers Can Remain Calm In A Hot Housing Market

Tuesday May 11th, 2021

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It’s no secret that being a first-time homebuyer is stressful, especially right now.

The average Canadian home price rose 31.6 per cent year-over-year in March to an average price of $716,828, according to the Canadian Real Estate Board (CREA).

Record low supply, along with low interest rates and high demand from buyers desperate for more space, is likely fueling the trend. CREA reports that there was only 1.7 months of inventory left at the end of March 2021 — the lowest reading on record.

A recent CIBC poll shows that 41 per cent of respondents admit they need help understanding all the costs associated with home purchasing. So how is a first-time home buyer supposed to keep their cool amidst such a hectic market?

Don’t rush into a decision that you can’t afford. It’s ok to wait until you find something that’s right for you.

“It’s a big decision to make, and it can be a little overwhelming,” says Carissa Lucreziano, Vice President of Financial and Investment Advice at CIBC. “But how to not get stressed by the hectic housing market is by engaging with an advisor who can help you. So, when you’re ready to make that decision, you’re doing so with the help of expert advice.”

 

An advisor can guide you through the entire process and make you feel at ease, offering advice on how much you need to save for the pre-approval process and which kind of mortgage works best for you.

While the market may be at a frantic pace right now, there’s no reason for first-time buyers to panic — you just may have to be patient or adjust your property preferences. In the meantime, you can prepare so that when the time is right, you’re ready and able to jump in.

“It is a hot housing market now, but it’s an ever-changing environment,” Lucreziano says. “Don’t rush into a decision that you can’t afford. “It’s ok to wait until you find something that’s right for you.”

If you haven’t started saving yet, that’s ok. Just review your monthly budget and see how much you can put aside. On top of your down payment, don’t forget you’ll need about three to four per cent of the purchase price available in cash for closing costs for items like land transfer and legal fees. To reach this goal number, first, maximize your tax-shelter accounts like the TFSA and RRSP. If you plan to take a loan from your RRSP through the Home Buyers’ Plan, note that there is a maximum withdrawal of $35,000, and it’s exclusively for first-time buyers. You’ll also have to repay yourself over the next 15 years.

What to do once you’re ready to buy

Once you’ve saved up enough cash for a down payment, it’s time to meet with an advisor to see what amount you qualify for. Most realtors won’t work with you unless you’re pre-approved, and it will help you when you’re shopping around to feel more confident.

“When a financial institution does a pre-approval, it’s based on income and affordability. So, it really allows the consumer to know what price range they’re comfortable in, and it makes the process less challenging,” Lucreziano says.

You can take a look at online mortgage affordability calculators to get a better sense of how far your budget will stretch to accommodate the total cost of housing — including monthly payments, property tax, utilities, insurance and maintenance.

Finding a home in your price range

If the numbers aren’t adding up for you, then consider creative solutions.

“More home for less dollars tends to be outside of large city centres, so consider living further out, if possible,” Lucreziano says. “Perhaps you can work from home, or work from home 50 per cent, depending on your commute.”

You can also start looking at fixer-uppers, which tend to go for less, or look for properties where there’s a unit you can rent out. If you are planning to purchase a home with a rental unit, this may increase your pre-approval amount. Talk with your advisor to find out if this is an option.

The more research you do on the neighbourhoods and the kind of property you want, the more you’ll be ready when something does come along.

“Buying a home or selling is one of the most stressful things that people go through, and I just encourage people to buy within their means,” says Christopher Alexander, chief strategy officer at RE/MAX. “It’s totally natural to feel buyer’s remorse for a little bit, and that’s why it’s so important to do your research and see as many homes as you can so you feel comfortable with your decision.”

To get a realistic feel of how much homes cost in your desired neighbourhood, download real estate apps and sign up for MLS emails. Compare sizes of homes, new developments versus resale and different property types, such as townhouses versus detached homes. That will also increase your confidence because when you see a good deal, you’ll know it.

“You just have to be smart and patient and don’t get caught up in the frenzy,” says Alexander.

“The real estate market has a natural way to calm itself down.”

Financial Post - May 11, 2021

 

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