Top Misconceptions by Home Buyers
Isn’t it funny that when home prices were skyrocketing, home buyers were willing to pay whatever it took to buy a property? Buyers sit on the sidelines when prices have come down, and more options exist! Some have good reason to sit patiently and watch from the sidelines, while others have misconceptions about the real estate market.
No matter what type of Real Estate market people are in, there is always a naysayer. They believe what’s on the news media or what their friend or a family member has to say. Media provide a macro-level perspective on how the market behaves or has behaved. The real estate market can differ from one neighbourhood to another, let alone from one municipality to another; micro markets even exist between different styles of real estate. There are lots of misconceptions, and here are the most common ones.
Misconception 1: You Can Time the Real Estate Market
In my career of ten years in the Real Estate industry, I’ve met many people who thought of buying real estate but who never actually purchased anything. The reason is often that the market is too hot or too slow. Not all neighbourhoods are the same, and not every person’s situation is the same. Real estate is a long-term investment. If you’re buying your primary residence, you’ll likely live in that house for five to ten years. And, in five to ten years, the property value will probably go up 25% to 30% on average. If you are buying for investment purposes, HST is a consideration.
In Ontario, HST is applicable on new-construction purchases, and while some rebates do exist, if it’s for investment purposes, you must have a one-year lease in place to qualify. Keeping that property rented for at least one year will help you qualify for the applicable HST rebate.
Based on a 70-year average in Canada, real estate prices increase by around 5% annually. So, the right time to buy is when you can afford to; the longer you wait, the more you’re likely to pay.
Misconception 2: Interest Rates are Going Up, the Market is Going to Crash
Interest rates are rising, and I am worried it will cost me more now. I should wait until rates come down. Well, we have enjoyed great interest rates for over a decade. Interest rates will continue to climb when inflation is high until inflation balances. Mortgage rates and housing market conditions are connected, but they’re not the only factors to consider. Whether you should buy a home in 2022 also depends on your financial picture. You’re in a solid position to buy a home if you have;
- a steady full-time permanent job;
- enough down payment plus a cushion;
- a strong credit score; and,
- low levels of debt
You only need to shop for the best mortgage product to suit your needs, and a good mortgage broker can shop around for you.
Misconception 3: I Know What I Can Afford. Let’s Find a House First Before I Talk to a Mortgage Broker.
Homeownership is a dream for many, and when someone decides to buy a house, they start looking at homes online and see what kind of house they like. We often get buyers contacting us through the listings we put on the market for sale, and the first enquiry we get is: “I would like to see the property, and when can I view this property?” As a standard procedure, we ask qualifying questions like, “Are you working with a Realtor?” “Are you approved for a Mortgage?” The answer is often “NO, but I know what I can afford, and I just want to look at the property first.”
You may have a dream house in mind that you want to buy, but would you go shopping without knowing how much you can afford? The first step should be understanding your finances and options regarding how much of a mortgage you can get and the additional costs associated with buying and maintaining a home. Make sure you get the right mortgage product to fit your needs.
Everyone wants the lowest interest rates, but the lowest interest rate doesn’t mean you will get the right mortgage. Depending on your local real estate market, not having a pre-approval mortgage can put you at a disadvantage, especially if you’re in a seller’s market. You may face competition from other buyers, and not having a pre-approval is a great way to lose out on your dream home. Knowing your budget and finances means better negotiating power in any market.
In conclusion, Canada’s real estate market has many driving forces, such as immigration and population growth, a lack of supply, rising interest rates, and more. However, buying Real Estate is always a good option for investment, whether you are considering saving for your child’s education or retirement while enjoying the house for yourself to live.