If there’s one thing we’ve learned about real estate, it’s that you can really blow it by playing the waiting game. This isn’t just about waiting to see a home, or taking too long to put in an offer. It’s also about waiting for the right time to buy. While the market gives us clues about price trends, prices tend to go up, not down. With this in mind, here’s our advice on when it makes sense to wait, with an important warning about what can happen when you wait too long to buy.
First, The Right Reasons to Wait
We would never recommend buying based on pricing alone. There are many reasons it makes sense to wait to buy a home including:
You don’t have a big enough down payment yet:
Not having a big enough down payment can add financial burdens you really don’t want to worry about. Buying a home is about smart investments, not getting hopelessly into debt. If you don’t have a big enough down payment you reduce your overall purchasing budget OR increase your mortgage payments. As a rule, you need:
- 5% for homes priced below $500,000
- 5% if the first $500,000 plus 10 percent of the remaining amount for homes priced between $500,000 and $999,999
- 20% for homes $1 million or more
If you have a down payment under 20% you need default insurance to get a mortgage which is an added expense. Ideally, you should target 20% for your ideal down payment because in Toronto it’ll be hard to find a home under $500,000.
Your experiencing some uncertainty in your life:
Whether it’s an unstable career, relationship, finances or any kind of instability in your life – this may mean it’s probably not time to commit to buying a home. Let things settle down a little so all that indecision in life won’t impact your ability to make the right decision or pay your mortgage.
The real estate market real isn’t ideal:
There are some real estate market situations that could be good reason to wait. This would include high interest rates, or low inventory. Both of these things will impact your mortgage payments and might even interfere with your ability to pass the mortgage stress test. In this case what we advise is you make sure you get mortgage pre-approval so you understand a) if you will qualify and b) for how much. Although we always advise our buyers to get pre-approval, in a high interest sellers’ market it’s a must. This is because a sellers’ market means there’s less inventory, so the competition is high. It’s bidding war city, the most stressful time to start a house hunt. As a result, you could end up overpaying for a home. With pre-approval you can go into bidding wars better prepared because you know your ultimate budget cap. Also, we’ll always discourage you from overpaying, and use our ninja negotiation skills to ensure you come out the winner.
Second, Hoping House Prices Will Drop
As mentioned, the thing with house prices is they tend to rise. So waiting in the hopes prices will drop is never a good strategy. Now you might be thinking, but wait, you just said above that if the real estate market isn’t ideal, I shouldn’t buy. Yes, we did. But it’s with an important caveat: sellers’ markets can lead to paying too much for a home. When you do that, you eat into your home’s equity, so it takes longer to get to a point where your home is worth more than when you bought it. To understand pricing, looking at prices from 2020 to 2021, there’s already been a 14.9% increase year over year. While you can usually see some fluctuation up and down from month to month, prices often peak in May. But overall, waiting a year can make a huge impact on pricing.
Third, All Time Low Interest Rates
Since interest rates have been at all-time lows lately, waiting just tempts fate. Those interest rates will start to rise along with housing prices. Fixed rates are already inching up, and by inching we mean really tiny incremental increases of between 0.1 and 0.2 of a percentage point. But every bit counts, and right now with the pandemic hopefully easing it’s way out (!) these little increments could continue to grow. That brings us back to the importance of pre-approval. While pre-approval can guarantee an interest rate for 90 to 120 days, if the interest rate goes down, you’ll still get the better rate. So it really is worth going through the pre-approval process.
The Bottom Line
The best time to buy a home is when you feel financially stable, have a respectable down payment saved and know you can pass the mortgage stress test. Since odds weigh heavily on the side of upward price trends regardless of the market, once you have your finances in a neat little row, it’s the best indicator for timing your house purchase right. Waiting for prices to drop on the other hand, is most assuredly the wrong strategy since this is very unlikely to happen.
Don’t let the waiting game cause you to pay more for your home. If you’re financially and mentally ready to start your home search, there’s no time like the present. We offer some of the best real estate agents Toronto offers ready to negotiate the best possible price for your dream home. Give us a call at 416.291.7372 or send us a message!
