ISYM
New Member
Hi Downtowner1, it is good to be thinking as you are. I would like to offer my opinion for your consideration as briefly as I can without getting into the ins and outs:
It would take an unanticipated shock to the economy for house prices to decline by more than 20% within a year. Consider that for years ’90 to’92, the average GTA resale price (source TREB historic market watch) declined by 8.1%, 8.3% and 3.9% respectively. In total its total decline of 27.6% took 7 years. If by chance those declines may have been tempered by the fact that the exorbitant interest rates were also decreasing – the opposite could be true this time.
Lacking a current shock, I suggest that rather than to panic sell and or buy in anticipation of the correction, you should continue to keep a keen eye on the market as it unfolds.
If the market corrects, condominiums, especially smaller units are most vulnerable. 1 plus bedroom units can fare only slightly better than bachelors and 1 bedroom units. Interest rates are also likely to rise slowly at some point in time. You’re almost at the 5 year mortgage term end with somewhere around 30-35% equity it seems (after adjusting for land transfer tax and developer fees/). In order to buy a home now you need that equity as a down payment. What I think you should consider is the cost of carrying the mortgage on a new purchase for 5 years at today’s fixed rate then assume that at the end of the 5 years the value of whatever purchase price you have in mind has dropped by 20-30% and recalculate your equity based on new market price adjusted for land transfer tax less outstanding mortgage.
Is it more or less than:
The cost of renewing your current outstanding mortgage at today’s rate after making the same assumption for the decline in value and recalculating the equity remaining after deducting the outstanding mortgage?
Are either of these less than taking out your current equity plus any saved amount between owning and renting and investing at a reasonable rate of return for 5 years?
Ignore trying to extrapolate condo fees and house maintenance fees, but factor in tax on investment earnings.
I’ll add one more thing. I was advised last week by a mortgage broker I regularly refer that lending companies have been requiring higher down payments and instituting more stringent lending requirements. If you do decide to sell and buy, it’s worthwhile getting a pre-approval letter first not just a pre-qualification.
It would take an unanticipated shock to the economy for house prices to decline by more than 20% within a year. Consider that for years ’90 to’92, the average GTA resale price (source TREB historic market watch) declined by 8.1%, 8.3% and 3.9% respectively. In total its total decline of 27.6% took 7 years. If by chance those declines may have been tempered by the fact that the exorbitant interest rates were also decreasing – the opposite could be true this time.
Lacking a current shock, I suggest that rather than to panic sell and or buy in anticipation of the correction, you should continue to keep a keen eye on the market as it unfolds.
If the market corrects, condominiums, especially smaller units are most vulnerable. 1 plus bedroom units can fare only slightly better than bachelors and 1 bedroom units. Interest rates are also likely to rise slowly at some point in time. You’re almost at the 5 year mortgage term end with somewhere around 30-35% equity it seems (after adjusting for land transfer tax and developer fees/). In order to buy a home now you need that equity as a down payment. What I think you should consider is the cost of carrying the mortgage on a new purchase for 5 years at today’s fixed rate then assume that at the end of the 5 years the value of whatever purchase price you have in mind has dropped by 20-30% and recalculate your equity based on new market price adjusted for land transfer tax less outstanding mortgage.
Is it more or less than:
The cost of renewing your current outstanding mortgage at today’s rate after making the same assumption for the decline in value and recalculating the equity remaining after deducting the outstanding mortgage?
Are either of these less than taking out your current equity plus any saved amount between owning and renting and investing at a reasonable rate of return for 5 years?
Ignore trying to extrapolate condo fees and house maintenance fees, but factor in tax on investment earnings.
I’ll add one more thing. I was advised last week by a mortgage broker I regularly refer that lending companies have been requiring higher down payments and instituting more stringent lending requirements. If you do decide to sell and buy, it’s worthwhile getting a pre-approval letter first not just a pre-qualification.
