Are you waiting for Toronto's real estate market to crash?
I was speaking with someone today about Toronto's real estate market and they said they'd rather wait until the market crashes, then they'll buy.
Let's take a look at the factors that can cause a market to crash.
The first factor is unemployment. If we have a consistent job loss situation over a few months in the economy, that would cause lower demand for housing, which could drive prices down.
The second factor is a spike in interest rates. The government has artificially increased the interest rates by introducing the stress test for everyone qualifying for a mortgage. The government is making everyone qualify for about six percent, meanwhile, their cost of growing is significantly less. This way, the government is making sure that when interest rates rise over time, they can still afford their homes at six percent. Unless interest rates go significantly higher than six, that could cause cost of growing issues where people have a hard time paying their mortgages, and that can cause a housing downturn.
The third factor is an influx of supply. All of the sudden, if we have a massive supply of houses for sale, that will outweigh the demand. If supply is more than the housing demand, that could drive the prices down.
Click here to understand why two plus two equals 19 in real estate. This is why it's important in real estate to get in as early as you can and be patient. Have a long term approach. It's not about timing the market or trying to understand when it is the best time to buy or when it the best time to sell, but it's getting into the market and being patient for the long term.
Another point to consider is if prices go up, let's say, by five percent next year. For example - You're looking at an $800,000 type of property, whether it's a condo or a semi-detached, this year, and that is up by five percent next year, so it's at $840,000. Think about it this way: In the next 12 months, what is your plan to come up with the difference? How will you save the $40,000 of after-tax money, the additional cost of land transfer taxes, and potentially higher interest rates, which means higher cost of borrowing?
So, if you're waiting for the market to crash, please feel free to connect.