Five factors homebuyers need to examine during this time

BY CLEVE DeSOUZA

If you think the 2020 pandemic is going to tame the Toronto housing market, think again. If you look at the history of real estate prices, they go one way – up. The pandemic won’t change that.

Check out the Canadian Real Estate Association (CREA) website at crea.ca to see statistics on real estate trends. You’ll see May 2020 home sales increased about 56% over May 2019. Before the pandemic began, the Toronto Regional Real Estate Board forecasted prices would jump by about 10% in 2020. The city was already among the 10 most expensive major housing markets in the world.

But don’t spend much time on the website, and don’t worry about the statistics. What was happening last year doesn’t matter. You are buying a home now, not a year ago. If you work in the Toronto area, then you must live in or near this area.

Besides, even though some may believe the current economic troubles will lead to plummeting home prices and create an opportunity to pick up houses at bargain prices, it’s not likely to happen any time soon.

The Canadian government is pumping about a billion dollars into the economy during the pandemic in order to avoid a catastrophe. And the Canada Mortgage and Housing Corporation (CMCH) is changing its qualifying rules to tame the market and mitigate exposure to the mortgage insurance.

The CMCH announced in June that it would reduce borrowing limits, demand higher credit scores, and restrict down payments to own-source for anyone who needs default insurance from the agency. All these changes are attempts to limit the agency’s exposure to the vibrant real estate market. Yet they spin it as if it protects us from default. This insurance does nothing to protect you. It protects lenders, even though borrowers pay for it.

For homebuyers and real estate investors, these factors add up to one, simple fact: There’s no reason to delay buying a home. Even if home prices go into free-fall – which industry experts say is unlikely – then the government and lenders will take steps to steady the economy.

Oil is down, the stock market is fragile, and real estate is holding up the market in many ways right now. I believe the government and other institutions will do whatever it takes to circumvent a crash.

Real estate buying and selling happens in every kind of economy, from boom to bust. Instead of watching the economy, buyers need to spend some time thinking about five different factors.

1. Calculate the price of the home that you can afford. Consider your income and debt as well as how much of a down payment you can make. (Remember, if you can increase your income or save more for a down payment, your options expand.)
2. Check if the location has good fundamentals that are likely to lead the property to appreciate in value. Remember, if your home’s value doesn’t rise, you are going to only pay interest and lose money in the end.
3. Can you live there? Consider how long you’ll spend each day commuting to work; the quality of schools in the area; and what neighbourhood features your family wants.
4. If you can’t live in the area – it’s too far from work, for example – can you buy a home and rent it out? As long as the rent is more than your mortgage and the home gains in value, this puts your money to work for you. Real estate is a proven way to build wealth.
5. Finally, enlist the aid of a trusted mortgage broker who can offer you a variety of options rather than you going from bank to bank. Not all brokers are made equal and care should be taken to work with someone who will see the bigger picture.