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PETER DOLEZAL: Revisiting the timing of real estate transactions
Concerned about market softening, several readers have asked if they should sell now before the market slows even more. Others wondered if they should hold off buying until prices become more affordable. As is often the case, the answer depends very much on individual circumstances.
For example, you may be a first-time buyer who would be wise to purchase a newly constructed home – on which the provincial government is currently offering a $10,000 cash rebate. To qualify, the purchase must be completed before April 2013 when the program expires.
You may be selling one home and planning to buy another for approximately the same price. In this instance, your timing really does not matter – as long as both transactions are made relatively simultaneously. Regardless of the market rise or fall at the time, your before and after cash position should be approximately equal – other than, of course, real estate fees, property purchase taxes and other miscellaneous transaction costs.
If your plan is to upgrade from your current home to one in a much higher price range, you may be well-advised to not rush. When markets adjust downward, lower-priced units tend to lose less percentage-wise than those in a higher price range. Therefore, by waiting out a softening market, you may well end up purchasing much more house for your dollar.
For those planning to downsize to a lower-cost home, selling sooner than later may be your best option. Selling that higher priced home before a significant market decline should leave you with more cash in your pocket than had you waited.
Regardless of the category into which you fall – whether first-home or replacement purchaser, be doubly sure your purchase is truly affordable, not only at today’s interest rates, but also at rates which may be several percentage points higher in the next few years.
Consider your mortgage options very carefully. If I were looking for a mortgage today, I would definitely opt for a five- or 10-year fixed-rate loan over a variable-rate mortgage. Both these fixed-rate mortgages remain available at rates below four per cent – a 60-year low.
Trying to time any market, whether real estate or financial, is usually a mug’s game. Current home selling and/or buying circumstances may well be the exception – but only if you believe our real estate market will continue to soften.
Although there really is no clear cut answer, the probability is quite high that the above approach makes sense in today’s real estate market environment.
A retired corporate executive, enjoying post-retirement as a financial consultant, Peter Dolezal is the author of three books. His most recent, the Smart Canadian Wealth-Builder, is now available at Tanner’s Books, and in other bookstores.