Friday, July 10, 2009

Help! Should I buy a house/condo in Toronto right now?

Any advice would be helpful. I started looking in May, but stopped when it looked like we might go on strike at the Globe and Mail.

Now I'm starting to look again and... I've lost my nerve a bit.

It some ways it seems like the perfect time to buy: House/condos in the Toronto neighbouhoods I like are more affordable now, interest rates are really low and the market seems to be headed back up.

But I have this friend, we'll call him The Pessimist, who believes Canada's bubble hasn't burst yet. Low interest rates are artificially stimulating the market right now, he says, and when they go up in 2010, demand will drop and house prices will drop too. (He believes another 10%.)

The Pessimist is not the only one. According to a recent Globe story:

[L]ow rates are also one of the reasons analysts are worried about the surprising surge in the housing market. “It's all happening because of the crack cocaine of housing, which is rock-bottom interest rates,” said Garth Turner, author of Greater Fool: The Troubled Future of Real Estate . “They're so irresistible, especially to inexperienced first-time buyers. That's what's propelling the market.”

Mr. Turner's concern is that rising rates will eventually propel the market lower by making houses less affordable. His level of confidence that the boom will last? Zero.

In his book, published in early 2008, Mr. Turner warned that the Canadian housing market was in a bubble just like its U.S. counterpart. After a peak-to-valley decline of almost 14 per cent in Canada's national average price, he's predicting another plunge for home prices that will be triggered in large part by rising interest rates.

“We're now into the housing bubble, Part Two,” said Mr. Turner, a former member of Parliament who now gives financial seminars and promotes his books. “I think this bubble is going to burst later this year. It's going to be short and intense.”

Yikes! That's my concern. And why I'm beginning to think I should rent for another year and see what happens.

But those low interest rates are so irresistable!


Any advice?


Adam Daifallah said...

Buy it.

Jason said...

Just buy something. Even if it's a fake low, things are well-priced, competition is down, and interest rates are fantastic.

As long as the place you buy is a bit long term, it'll all even out by the time you decide to sell.

Anonymous said...

Have you done some cocktail-napkin calculations outlining each of the possible scenarios (average price increases, drops; interest rate hikes and decreases)? You can then start to look at the differences between the best and worst cases, and start thinking in a more structured way about how much risk you're taking on and your willingness/ability to deal with that risk..

ducKy Boyd said...

I JUST put a deposit down on a new townhouse...DO IT. According to all the realtors we talked to, all the salespeople, everyone who has purchased a home recently, THIS IS THE TIME TO DO IT! The interest rates are going up again, and we talked to three different mortgage specialists who said it's not going to anywhere but up now. Luckily, we hunted for mortgages about three months ago...and so we have some GREAT rates to decide between. But, looking at rates now, they've already all gone up at least 1%.

Alanah said...

do you want a house in toronto?

Megan said...

The lower the interest rate the better. It makes a huge difference in what you're paying over the long run. I have no idea what the actual numbers are, but it's my understanding that- you're way better off getting a place that is more expensive with a lower interest rate, than less expensive with a higher interest rate.

If you haven't bought before, I know there's at least one place where if you cough up 5% they'll cough up on another 10% as a payment and interest-free loan. If you sell at a loss you don't have to pay it back. It's the one-cole development at Dundas and Parliament.

We'd leap at it except we already own out of the city and it's only applicable to people who don't currently own a place, and possibly only for first-time buyers, but I'm not sure.

Anonymous said...


Mystery Games said...

It's a big investment, but is this long or short term? That makes all the difference when dealing with the ups and downs of the property market and what you want to get out of your purchase.

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Ben said...

Don't do it!