What a difference a year can make. We started off 2009 with headlines predicting housing market crashes, rapidly declining sale prices and general gloom and doom stories. Now, in December we are seeing speculation of housing bubbles, stories of bidding wars and general speculation about how “hot” the market is. Buying a home is a stressful time, particularly as a first time buyer. Who should you believe? How do you know when it’s the right time to buy? Where do you start to look? Below are my thoughts on what you as a first time buyer should think about when buying your first home.
1. When You Get Into The Real Estate Market is Less Important Than Just Getting In It and Staying In It. In other words, the length of time you plan on staying in your home is more important than when you buy it. If you are like most first time buyers, you are likely planning on owning a home for the rest of your life. We can all make predictions but no one really knows what the market is going to do in 2, 4, 6 or even 12 months. Just look at 2009 real estate predictions versus actual results (VERY few people predicted the housing market to take off as it has). It is however fairly safe to assume that if you hold onto your home for several years, you will make money. Instead of timing what the market is going to do next month, focus on what it will do a few years out. If you believe the market is going to go up, then ignore short term price swings and go for it.
2. Plan for Future Life Changes. Typical first time buyers in their 20’s and 30’s generally have a number of life changes to look forward to: marriage, children, potential career changes, etc. While you can’t eliminate these unknowns you can plan for them when buying a home. Don’t ignore things such as local schools, access to major transit lines and the size of that 3rd bedroom. You just never know when these things will become important to you. Even if you plan on moving in a few years, it is always better to buy a home that can accommodate future life changes (just in case).
3. Don’t be Swayed by the Media. Media headlines are meant to invoke readership. The headlines don’t need to be false to play up the most shocking details ultimately spinning a story out of balance. To prove my point, here is a sample of Real Estate headlines appearing in Canadian papers in the first quarter of 2009:
• GTA Housing Sales and Prices Plunge (Globe and Mail)
• January Home Sales Plunge 50% (Toronto Star)
• Loss of Confidence Swamps House Market (Toronto Star)
The Toronto Real Estate Board reported that in January 2009, median sale prices were down 5.3% from a year earlier. The only thing that dropped 50% was the number of homes being sold. The truth is most people don’t care about sales volume but do care about home prices. So why wasn’t the focus of these headlines on the actual price drop? Clearly, reporting a “5.3% drop” isn’t nearly as eye-catching as a “50% plunge”. Ironically, the best time to buy in 2009 was when the doom and gloom headlines were at their peak. Those buyers who had the insight to look beyond the fear-filled stories typically bought their home at a good price and low mortgage rate. While I wouldn’t ignore the media all together, I certainly advise buyers to take it with a grain of salt. Every article has a bias (mine included). In the end, it is your money and your decision. Do not let others dissuade you from doing what you feel is best.
4. Consider Your Future Income Potential. Understanding what you can afford is important but so is factoring in your future income potential. If you are early in your career, it is not uncommon that your salary will appreciate considerably within a few years. Not everyone can count on a salary increase however if you are confident you will make more money in the future, you may want to consider stretching into a home that you can live in longer. Moving costs can wipe out any profits if you decide to sell in the first few years of home ownership. If you are lucky, your home will appreciate quickly but this is not something you should count on. You should anticipate living in a home for at least a few years before breaking even or realizing a profit on its sale.
5. Don’t Let the Past Paralyze Your Future. First time buyers tell me all the time, “I wish I had bought 2 years ago”. The truth is that in real estate, the earlier you bought, generally the more money you have made. What first time buyers need to realize is that a few years from now someone will likely be saying, “I wish I had bought in 2009”. Prices are high right now but what is more important is where you think they are going to be a few years from now. If you believe they will be significantly lower, than wait; if not, jump in.
6. Be Prepared to Respond to Changing Markets. The housing market is finicky (just look at the market fluctuations in 2009 alone). Real Estate Board statistics are great at showing market trends but they are backward looking reports that are not necessarily indicative of the future. Supply and demand change significantly from month to month due to seasonal, situational and economic shifts. The faster that you as a buyer react to the changes in the market, the better off you will be. There are times when buyers have to be more aggressive to get the home they want and other times when they can be more demanding on sellers. The only way to know what the market is doing right now is to get the advice of a realtor. We are the ones who see the market shifting before the MLS statistics come out. Finding a realtor who is in tune with the area you want to buy in is a powerful tool. Find an agent you trust, and get them working for you as early as possible.
7. Understand Your Financial Options. Don’t rely on on-line mortgage calculators and internet information. The best people to talk to about financing your home are the experts themselves. A good mortgage broker or financial lender will tell you exactly how much money you qualify for and more importantly, provide you with different payment options. Speaking with a mortgage broker early on in your buying process (even 6-12 months out) can be key in giving you the knowledge you need to make an informed financial decision and they give many buyers the peace of mind they need to move forward. If you want some names of people to speak with, let me know. I know some fantastic mortgage brokers that I am happy to recommend.
8. Your Home Is Unlike Other Assets. A home is a place to live, relax and create memories, it is not just an asset. I find that most people have some kind of emotional reaction to a home when they find “the one”. My only point here is to tell you not to settle. There are great homes out there at every price point. Don’t let fear, frustration or guilt make you settle for something less than stellar.
9. Have Faith That People Want to Help Not Hurt You. It is natural for people to be guarded by realtors and mortgage brokers. I get it. Like every profession, not everyone abides by the same skill level. I will say though that for the most part realtors exist to help, not hurt you. I have no desire to work with someone who doesn’t want my help but I am more than happy to work with those who do. There is only so much information you can get from looking at MLS and researching the internet so don’t feel guilty about getting an agent involved before you are ready to buy. Many first time buyers are surprised when I tell them that I start working with many of my clients 6-9 months before they actually buy anything. My role is to educate and empower. This is not something that is necessarily accomplished in 2 weeks. Don’t feel guilty as a first time buyer to get a realtor and mortgage broker involved at the start of your home search. When you surround yourself with knowledgeable people, the entire process is much easier.
2010 is shaping up to be another fascinating year for real estate in Oakville. Best of luck to all the first time buyers out there! For more advice, visit www.lindsaywalls.com or email me at lindsay@remaxaboutowne.com.
Regards,
Lindsay
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