`There's a frenzy out there'
Hot housing market demands cool judgment
Sunday, April 07, 2002
ADVERTISEMENT
TORONTO (CP) -- With housing prices going through the roof in some parts of the country, it's more important than ever for buyers to do their homework so they don't strike a deal they will live to regret.
One of the things that many people overlook, when shopping for a house, condo or apartment, is whether they'll be able to afford it in the long term, says Duke Stregger, executive director of the Credit Counselling Service of Toronto.
``You've really got to sit down and make a financial plan for at least three years in advance, based on logical conclusions regarding salary increases, bonuses, et cetera,'' says Stregger.
Some of the things that should factor into this plan are mortgage payments, property taxes, heating, water and electrical utilities. Then there are expenses associated with cars, major appliances and furniture.
And, of course, there are all the other important things in your life.
``If you're planning a family, what about day care and the cost of all the things that go with it?'' Stregger notes.
This detailed analysis may easily be overlooked when real-estate prices seem to be zooming endlessly skyward.
In some parts of Toronto, and in other housing markets across Canada, there have been bidding wars among multiple buyers. The winners end up paying tens of thousands of dollars above the asking price.
``There's a frenzy out there, to some degree. Especially in certain areas,'' Stregger says.
But this won't continue forever, notes Michel Laurence, principal adviser at Canada Mortgage and Housing Corp., a federal Crown corporation that provides services for the real-estate industry and consumers.
``What we expect is some cooling off in the market,'' Laurence says. ``But it's still a hot market right now.''
Many buyers have been trying to take advantage of current mortgage rates, still near 40-year lows, although higher than they were earlier this year.
``We do expect interest rates to move higher and that should cool off the markets a bit,'' Laurence says.
Higher interest rates will increase the monthly cost of owning a home, causing some potential buyers to pull out of the market, he notes.
At the same time, more properties will likely come on to the market. Some of the reason is seasonal _ families want to move during the summer before school starts. Additionally, homeowners will want to cash in on the current prices.
While market conditions have tended to favour sellers over the past 18 months to two years, depending on the locality, there was more of a balance between supply and demand through most of the 1990s, Laurence says.
``The last time we've seen a sustained level of seller's-market conditions would have been in the mid to late 1980s, particularly in the Ontario market and Toronto specifically,'' Laurence says.
In some cases, the slowdown then was sudden. The slump was prolonged by a recession that lasted well into the 1990s, a scenario that's not likely to be repeated because the economy seems to be recovering, he adds.
Stregger, whose non-profit organization provides free credit counselling, says the impact of the 1980s boom and 1990s bust wasn't felt for several years after the real-estate purchases.
He warns it's too soon to say whether the current crop of home buyers will fare any better.
``It will take a year or two,'' he predicts. ``As soon as the interest rates go up and people have difficulty with those mortgage payments or have to buy a new car, that's when the rubber hits the road, in a manner of speaking.''
But if buyers do their homework, he says, things will probably work out.
Canada Mortgage and Housing provides a number of resources for consumers at its Web site, www.cmhc-schl.gc.ca, including a step-by-step workbook and AffordAbility software that can help calculate expenses.
Credit Counselling Service of Toronto, affiliated with a national network of similar non-profit organizations listed on www.creditcounsellingcanada.ca, sells a number of booklets about personal finance for a small fee.
In general, Stregger believes it takes at least five years after moving into a house before the buyer gets his or her finances back in order.
As a result, he notes that shorter-term mortgages -- which tend to have the lowest interest rates -- can be risky because they can completely destroy a family budget if they go up sharply, even for a short period.
``I always encourage young people to lock in that mortgage for the time they feel comfortable with -- nothing less than three years, hopefully five,'' Stregger says.
Stregger also advises house hunters to base their decisions on their projected net income, not gross income, as some lenders suggest.
``You have to look at, realistically, no more than 25 to 30 per cent of your net income for housing.''
Hot housing market demands cool judgment
Sunday, April 07, 2002
ADVERTISEMENT
TORONTO (CP) -- With housing prices going through the roof in some parts of the country, it's more important than ever for buyers to do their homework so they don't strike a deal they will live to regret.
One of the things that many people overlook, when shopping for a house, condo or apartment, is whether they'll be able to afford it in the long term, says Duke Stregger, executive director of the Credit Counselling Service of Toronto.
``You've really got to sit down and make a financial plan for at least three years in advance, based on logical conclusions regarding salary increases, bonuses, et cetera,'' says Stregger.
Some of the things that should factor into this plan are mortgage payments, property taxes, heating, water and electrical utilities. Then there are expenses associated with cars, major appliances and furniture.
And, of course, there are all the other important things in your life.
``If you're planning a family, what about day care and the cost of all the things that go with it?'' Stregger notes.
This detailed analysis may easily be overlooked when real-estate prices seem to be zooming endlessly skyward.
In some parts of Toronto, and in other housing markets across Canada, there have been bidding wars among multiple buyers. The winners end up paying tens of thousands of dollars above the asking price.
``There's a frenzy out there, to some degree. Especially in certain areas,'' Stregger says.
But this won't continue forever, notes Michel Laurence, principal adviser at Canada Mortgage and Housing Corp., a federal Crown corporation that provides services for the real-estate industry and consumers.
``What we expect is some cooling off in the market,'' Laurence says. ``But it's still a hot market right now.''
Many buyers have been trying to take advantage of current mortgage rates, still near 40-year lows, although higher than they were earlier this year.
``We do expect interest rates to move higher and that should cool off the markets a bit,'' Laurence says.
Higher interest rates will increase the monthly cost of owning a home, causing some potential buyers to pull out of the market, he notes.
At the same time, more properties will likely come on to the market. Some of the reason is seasonal _ families want to move during the summer before school starts. Additionally, homeowners will want to cash in on the current prices.
While market conditions have tended to favour sellers over the past 18 months to two years, depending on the locality, there was more of a balance between supply and demand through most of the 1990s, Laurence says.
``The last time we've seen a sustained level of seller's-market conditions would have been in the mid to late 1980s, particularly in the Ontario market and Toronto specifically,'' Laurence says.
In some cases, the slowdown then was sudden. The slump was prolonged by a recession that lasted well into the 1990s, a scenario that's not likely to be repeated because the economy seems to be recovering, he adds.
Stregger, whose non-profit organization provides free credit counselling, says the impact of the 1980s boom and 1990s bust wasn't felt for several years after the real-estate purchases.
He warns it's too soon to say whether the current crop of home buyers will fare any better.
``It will take a year or two,'' he predicts. ``As soon as the interest rates go up and people have difficulty with those mortgage payments or have to buy a new car, that's when the rubber hits the road, in a manner of speaking.''
But if buyers do their homework, he says, things will probably work out.
Canada Mortgage and Housing provides a number of resources for consumers at its Web site, www.cmhc-schl.gc.ca, including a step-by-step workbook and AffordAbility software that can help calculate expenses.
Credit Counselling Service of Toronto, affiliated with a national network of similar non-profit organizations listed on www.creditcounsellingcanada.ca, sells a number of booklets about personal finance for a small fee.
In general, Stregger believes it takes at least five years after moving into a house before the buyer gets his or her finances back in order.
As a result, he notes that shorter-term mortgages -- which tend to have the lowest interest rates -- can be risky because they can completely destroy a family budget if they go up sharply, even for a short period.
``I always encourage young people to lock in that mortgage for the time they feel comfortable with -- nothing less than three years, hopefully five,'' Stregger says.
Stregger also advises house hunters to base their decisions on their projected net income, not gross income, as some lenders suggest.
``You have to look at, realistically, no more than 25 to 30 per cent of your net income for housing.''
