John Pasalis in Toronto Real Estate News, Home Buying
Being a home buyer in Toronto's real estate market is hard work.
Every week, you eagerly wait to see the new listings that are going to come on the market for sale and when you finally find one you like you often have to compete with another 10 buyers to actually win the house.
On top of that, home buyers have to deal with constant media reports about the housing market that often send mixed - and often emotive - messages. In the past few weeks, we have seen an alarming article from Macleans telling us that we should all panic, a Toronto Star article telling buyers the real estate market is going to cool, not crash and finally a Globe and Mail article saying that despite the run up in house values home affordability in Canada is actually improving.
All the multiple offers and mixed media reports inevitably lead buyers to a nagging question - is this a good time to be buying a house in Toronto?
So if you're actively looking for a home in Toronto's real estate market, or considering jumping in, I'll offer a few words of advice.
Prices Will Fall One Day
Probably not what you were expecting to read, but it's the truth. Prices in Toronto's real estate market will fall one day. The question is not if but when, why and by how much.
The bubble theorists have been predicting the collapse of the housing market for at least a decade. When I bought my first house back in 2003 the market was not much different than it is today. Every house was getting bidding wars and every other day I would read alarming articles about a housing bubble and how the appreciation in house prices is unsustainable.
The reality is that nobody knows when prices are going to fall, we don't know what's going to trigger it and we don't know by how much they are going to fall. But it's important to keep one fact tucked away in the back of our minds - it's going to happen one day.
I used to rock climb quite a bit and the one thing I loved about the sport was the way it forced you to do your homework and to prepare well ahead of ever getting on the wall. The risk of falling and getting injured never stopped me from climbing, but it did force me to plan carefully, to make smart decisions and to stay laser focused on my goal.
I find that many of these same lessons can be extended to all the difficult decisions we have to make in life, including deciding whether or not we want to buy a house. In the case of home buying, the potential risks are not as obvious as the ones a climber faces when he gets on a wall which is why it takes some extra effort to sit down and plan your route carefully.
I just bought my current house a year ago and knowing that prices are going to fall one day was not enough to keep me out of the market as a home buyer, it just forced me to think more clearly about my home buying strategy and to make sure I'm making prudent decisions today.
At Realosophy we call this Defensive Home Buying.
Buying defensively means coming up with a home buying strategy that ensures your investment in your home is as secure as possible.
It means buying a home you can afford to stay and comfortably live in to for at least 5 years.
It means buying below the maximum banks will lend you and/or buying a home that offers you some additional income from a basement apartment or rental unit.
I know some people in my industry might argue that it's worth spending as much as you can on a house because at 3% for a 5 year mortgage, money is very cheap right now. The problem I have with this approach is that it rarely takes into account the road ahead of us.
Before getting on a wall, climbers will stand at the base of the route they want to climb to start planning their ascent. They think hard about the route they want to take and will consider deeply the potential challenges and risks they might face ahead.
I find that many buyers forget to take a step back to consider the route that lies ahead of them and the potential challenges they might face. Things may look good now at 3% but what about a year, two years and five years from now? Are all jobs in your family relatively secure? If one job is not secure, can you buy a house you can afford on one partner's salary? If you plan to have kids, are you buying into a good school district today so that you don't have to rush to move in only a few years time? Does one partner want to take time away from work to raise kids? Can you cover your mortgage payments if rates increase to 6% in five years?
When you take the time to plan your route carefully you spend more time enjoying the journey and less time worrying about what might lie ahead. This calm control in the face of risk is one of the most sought after lessons of being "on the wall" and it's one that I return to time and time again in real estate.
John Pasalis is the President and Broker-Owner of Realosophy Realty Inc. Brokerage in Toronto. A leader in real estate analytics and pro-consumer advice, Realosophy helps clients buy or sell a home the right way. Email John