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Is Buying a Home Still A Good Investment? Toronto

With the Canadian Government constantly sending us messages about saving for our retirement, I can't think of a better way of creating wealth than paying off your own mortgage than your landlords.   But let's look at some survey's of what other Torontonians and Canadians think about real estate as an investment.

 

Despite a tricky economy and concern about climbing household debt, a survey says the portion of Canadians who are "very likely" to purchase a home in the next two years has increased from 7 per cent to 10 per cent since the same question was posed two years ago.

 

The media has been full of speculation about house prices being unsustainable in Toronto and generally across the country, but the lure of homeownership remains strong among those surveyed by Ipsos-Reid on behalf of RBC.

 

An overwhelming 91 per cent of Canadian homeowners believe a home is a good investment. That's the highest level of confidence in homeownership that the survey has seen in 12 years. This was the 17th annual RBC Homeownership study.

 

Buyers are no longer waiting until they get married to enter the marketplace.

People aged 18 to 24 are most likely to buy in the next two years, says the survey. Most people who plan to buy are planning to take out a fixed-rate mortgage (44 per cent), although combination mortgages that include fixed- and variable-rate components are also popular at 40 per cent. Seventy per cent will take a mortgage term of five years or longer.

 

Low mortgage rates continue to fuel the real estate market, but the survey found that 64 per cent of respondents believe that rates will be higher in one year's time. They are expected to start rising gradually at the end of 2010 and into 2011, but will probably still be near historic lows.

 

Do you think the current 2010 real estate prices are over inflated?

A recent report by Canada Mortgage and Housing Corp. (CMHC) says that house price increases have not necessarily been as dramatic as they seem in some media reports. "To a large extent, price gains in 2009 reflected a rebound back to levels that prevailed prior to the economic downturn. In particular, measured from the fourth quarter of 2007 to the fourth quarter of 2009, home prices rose 6.5 per cent. This translates to an average annual rate of price growth of less than 3.5 per cent over this period, which is not out of line with average historical rates," says CMHC.

 

Many of the media reports rely on average MLS prices as a measure of price increases, but CMHC notes that these numbers are skewed when there's been a lot of activity in higher price ranges in the most expensive markets in B.C. and Ontario. 

 

Alternative price indexes that take the fluctuations of average house prices into account "strongly suggest that recent developments in home prices have been much less volatile than indicated by average MLS price changes," says CMHC. "Analysis by the International Monetary Fund (IMF) also suggests that national house prices in Canada are supported by long-term fundamentals."

 

Another recent IMF report says that prices are "essentially at long-term equilibrium values," says CMHC.

 

Predictions for the future of the housing market

Factors expected to cool the housing market going forward include an increase in the number of homes for sale as more listings come on the market; the introduction of Harmonized Sales Tax in Ontario and B.C, which will add new taxes to the cost of buying a home; and new mortgage rules that require some buyers to have a larger down payment to qualify for a mortgage.

 

Cooling doesn't necessarily mean any downward price adjustments, if could simply mean fewer sales and a slower but steady price increase.

 

The Test - Give Yourself Wiggle Room

 

If you are just entering into the real estate market, do the "stress test", by figuring out what payment would be required if rates rise, and then determine if the home you want is affordable at that level.   That will leave you "wiggle room" and ensure you can comfortably afford to purchase in that price range.  Sometimes a compromise in lowering your expectations just a bit can give you peace of mind in the long term.

 

Even if the prices don't skyrocket in the next 10 years -- your mortgage will definitely decrease, still building you equity towards your retirement.

 

Sutton Group Realty Toronto 416-896-3333

Sutton Group Realty Mississauga 905-896-3333

 

Visit us on-line at www.SuttonRealty.com or www.SearchTorontoHomes.com

 

Posted: Thursday, April 01, 2010 3:27 AM by Sutton Realty

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