Welcome to the Homeowners Club
2020-09-21 | 05:00:53
Happy Monday everyone!!
Hope you all had a chance to enjoy the beautiful weather over the weekend.
For me it has been a continuing stretch of busy days. Whether positioning mortgages for first time homebuyers or, helping parents purchase their children’s first condo, I’m encouraged with the continuing real estate activity here in the Greater Toronto Area.
Needless to say, everyone is well aware that the real estate market remains hot. How long this streak of record breaking sales and price increases will last is anyone’s guess but, it is satisfying helping clients purchase their first home or, investment property.
In a mortgage financing environment where underwriting guidelines are inherently strict, it is not only the super low interest rates that is contributing to record home sales.
There are so many factors that “experts” are preaching as to why the real estate market continues to be hot, not only here in Toronto but, in Canada’s other big cities such as Vancouver and Montreal.
Can anyone imagine what things would look like in the Canadian real estate market if we didn’t have a pandemic to deal with?
Some indicate there is an exodus of people moving out of Canada’s biggest cities to more remote areas. Reasons: more space both indoors and out; work from home; less traffic congestion; lower home prices; and on and on.
I am not suggesting there have not been many moving out of the larger cities for the important considerations mentioned above.
But, those selling their homes in the city have done just that – they have sold their homes to another – who will now call that property, home.
For me, an exodus implies that people are leaving their homes in the city, boarding them up, and moving to greener pastures.
This is not the case.
It is impossible to have record breaking sales numbers and price increases if people decided to just move out of the city and abandon their home. Happy family’s now replace the sellers as the new occupants of that sold home.
My hope is that more and more people, especially first time buyers and those relatively new to our country who have been renters until now, take the extra time to educate themselves on the benefits homeownership creates for them in the present and future.
Certainly, the sub 2% interest rates are enticing people to buy but, one still has to qualify at a ludicrous 4.79% and, have a good paying secure job to battle stringent debt service ratios to capture a mortgage. Other factors, among many, include how much you have saved and where you received your down payment amount.
And despite the obstacles in place to get a mortgage, more and more people want to buy their own home.
The security of owning and affording your own home eliminates thoughts of having to one day move yourself or your family. Common reasons include the paying of higher rents created by renovationsor, having to move because of ownervictions.
Studies show that 75% of people buy their home because they need a place to live. Only the remaining 25% purchase their own home because of its investment qualities.
Interestingly, all of my first time homebuyers who previously rented, want to purchase investment properties in the future. I attribute this to their being educated from mortgage professionals such as myself who are also real estate investors. Many are having conversations with their homeowner friends who have seen, despite some dips in the market, incredible equity growth over the years.
Homeownership helps us plan for the type of future we strive for. It allows us to plan an easier launch for our children entering their adult life.
Others will argue that homeownership today is too risky and that prices are too inflated.
Please – someone - anyone, remind me what decade we were in when we last heard that real estate prices were not going to fall off the face of the earth here in Toronto! If and when you do, please also include the property value then to what it is now.
What I do know is that the risk tolerance for banks highly favours you purchasing a home more than any other investment.
Assuming you have a steady secure job, good credit and all of the other factors you are strictly required to have in order to be considered for a mortgage today, the bank will loan you up to 95% more of your down payment towards the purchase of your own home.
Assuming you are using $100K as a 20% down payment towards a purchase of an investment property. The bank will loan you a further $400K for your $500K real estate purchase. This means that the bank’s tolerance for real estate is, not so risky. And with a current mortgage default rate of .29% across the country, it is clear that Canadians pay their mortgage and that banks are secure.
Those new buyers educating themselves and engaging in conversations with homeowners are feeling more comfortable in buying because yes, there will be bumps along the way (no different than investing in any stocks, bonds, mutual funds, etc.) but, over time, one is secure that their home purchase also becomes their biggest source of equity that can be applied to future plans and goals.
And despite a global pandemic, a recent Scotiabank survey revealed that only 38% of Canadians believe that now is not a good time to purchase a home. Interestingly, 18% of those aged between 18 and 34 say the pandemic is actually speeding up their plans to purchase their own home.
So congratulations to all of you entering into the homeowners club! We all appreciate how difficult admission into this club is. And despite the naysayers and pessimism that you listen to daily, you will always need to live in and have an expense of a home.
Having your own home gives you better flexibility today and for the future where other investments cannot.
You can improve and increase the value of your home through renovations as 26% of Canadians surveyed are seriously considering doing because of the changes caused by COVID.
You can create another livable space that can be rented to help subsidize your income and expenses. An accessory apartment can also be made home to a loved one in order to avoid further expenses of their living elsewhere.
Over a 5-10 year period, you can use the equity to move into a larger, or smaller home, as your needs and objectives change.
With other investments, such as stocks, you can either sell or hold with you having zero control over the price and value of your investment.
Become educated and know your options. The facts and data are there for everyone to review.
Knowing your financial profile assists and comforts you in your home buying decision.
If you or someone you know will benefit from a discussion of what has been outlined above, please reach out to me and keep your homeownership and real estate investing dreams alive.
Looking forward to your comments, questions and calls, I wish you all a great week ahead.
Marco
