We may just be settling into the idea of warmer weather, but the Canadian housing market has been hot for a while. In the midst of the busiest month of the year in real estate, the Canadian housing market shows no signs of cooling down anytime soon, pushing buyers to think twice about their next move.
Many assume that their best bet is to steer clear of the hot market, but that isn't necessarily a smart move. You can still find your dream home in a hot market -- you just have to understand how to navigate it properly. To make the most of the sizzling market, here's what you need to know.
If you are among those waiting for the housing market to suddenly collapse, you may be waiting a long time. The Canadian Real Estate Association predicts a 1.1 per cent hike in housing sales in major Canadian cities this year, topping their previous assumption of 0.1 per cent. Of course, there is no way to predict exactly what the housing market will do next, but when it comes to real estate, it's important to remain realistic and practical.
So, let's start with the basics.
First and foremost, it is important to stay rational. If you're going to survive your dive into the piping-hot market, you'll need to keep your head on your shoulders. Yes, people will tell you that you have to buy quick when you are competing against several other buyers -- but you also have to buy smart.
Since buying a home has many far-reaching implications, from where you will live to how hard it will be to make ends meet, it's important to keep your emotions in check and make the most rational decision possible.
In order to do so, your best bet is to speak to a mortgage broker ahead of time and ask all the questions you can. You may have Googled anything and everything about the housing market, but a mortgage broker lives and breathes mortgages and can help you understand what information is important and what is just plain clouding your judgment.
The most important thing to keep in mind is to remain realistic and practical in the process of selling and/or purchasing a home in a hot market.
Now, what type of questions should you be asking? A great place to start is down payments and rates -- especially if you're working with a low down payment.
You have to understand how much of your down payment will actually earn you equity -- sometimes five per cent seems like enough, but depending on how much you are borrowing, five per cent down may only leave you with one to two per cent of equity in your home.
On top of that, five per cent may well not cut it: the recent Canada Mortgage and Housing Corporation (CMHC) rule changes now require a minimum down payment of 10 per cent on amounts over $500,000, which applies to most properties in hot markets like Toronto, Vancouver and Montreal.
Even with the rules, increasing your down payment to 10 per cent or even more can help you build up a larger portion of equity in your home up front.
It's also important to think ahead in order to take into account the implications of not taking the appropriate steps when navigating a hot market. Indeed, beyond not putting enough down, the other common mistake homebuyers make is not saving enough for their down payment in the first place.
This doesn't mean not having enough money for a down payment at all. It means putting in the absolute bare minimum and scraping by -- and leaving yourself hardly any equity in your home. The average Toronto home was priced just under $700,000 this month, giving many homebuyers a wake up call on their money-saving habits.
Be sure to stuff your piggybank when you can, and save yourself the trouble of pondering over the size of your down payment when you are ready to buy.
Yes, there is always a chance that prices will go down, but waiting too long isn't necessarily your best bet.
Asking questions also includes making a list of your priorities -- what matters most and where can you make compromises or sacrifices. A nice kitchen may be your top priority, but finishes and appliances can be changed: Location cannot. Make sure you are prioritizing properly.
If you can, also spend some time looking over what's available before you get serious. Get a handle on the local market without the pressure of feeling like you need to make an offer. You'll also learn more about the kinds of homes and neighbourhoods you like, or don't, and which features matter to you.
Next, you will need to keep up-to-date on mortgage market trends and news. For example, following the recent Federal Reserve announcement on maintaining interest rates and its impact on the Canadian economy and benchmark rates, the housing market may be seeing some changes in the future.
Find out what to expect by informing yourself of all current and upcoming changes in the housing market. A great way to stay updated is to subscribe to updates from the CMHC website or other websites pertaining to mortgages and housing rules.
Once you have familiarized yourself with market conditions and current rules, you can begin looking for your home. When you start your search properties in a hot market it is important to be prepared for homes to get scooped up quickly -- so keep your options open and think ahead.
Another common mistake that many home shoppers make is waiting on the market and/or price hunting. Yes, there is always a chance that prices will go down, but waiting too long isn't necessarily your best bet.
A home is not just a place to live -- it is an investment -- and it's also not set in stone. So while you wait for the perfect opportunity to arise, you are wasting valuable time.
You could be building equity in your home by making monthly payments. If you decide to move later, that's fine; at least you have been contributing to your net worth in the process.
Overall, the most important thing to keep in mind is to remain realistic and practical in the process of selling and/or purchasing a home in a hot market. That being said, speculating on future housing market activity is not something worth dwelling over.
Instead, work to understand the current housing market you are in, and do your best to successfully navigate through the circumstances you are currently facing. Because when it comes to real estate, the more you know, the better.
To make the most of this hot buying season -- play it smart, and play it safe.
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