Is it time to buy? Mortgage question faces new home buyers

Many new home shoppers are facing a financial quandary.

“Should we buy now or wait. And if we do buy now, what if…?” they may rhetorically ask themselves. What if prices go down? Is this the bottom of the market? If the downturn becomes prolonged will there be better deals ahead? Are interest rates going to climb or fall?

“There are so many scenarios making the rounds out there that those shopping the new home market just aren’t sure what to do,” says Chris Pollen, sales and marketing manager at Avi Urban, the multi-family division of Homes by Avi.

Instead of pondering whether prices will go down, Pollen says, “what if mortgage rates go up,” how will that affect that buying decision?

“Posted interest rates are the lowest they’ve been in a long time, and new home prices are unlikely to go down, why would they when supplier and trades’ costs to builders are still high,” he adds. The weaker Canadian dollar means many building supplies are more costly these days.

The mortgaging options available to consumers is varied, says Laura Parsons, mortgage expert with BMO in Calgary.

“If you are just starting out on the road the home ownership, it’s important to talk to a mortgage expert so you know the options and programs available to help you along that road,” she says.

Based on figures provided to Pollen by the Bank of Montreal, a half-point rise in the current mortgage rate environment — which sees the five-year posted rate at 4.74 per cent — could bring with it an increase of between $25,000 and $30,000 in interest costs over the life of a 25-year mortgage. Also included in this calculation is an expected increase in Canada Mortgage and Housing Corp. premiums for mortgage loan insurance.

“We want to get this message out to people visiting our show homes, to educate them a bit more about what might happen under this scenario,” Pollen says.

Parsons says the mortgage rate figures presented are not a prediction but are a guide for home buyers, particularly those getting into ownership for the first time.

“Rates are the lowest they’ve been in 30 years, and right now there is no indication they’ll be going up,” she says. “But we just wanted to further educate buyers with a what-if scenario.”

The new home marketplace is still active with new construction, and Calgary is continuing to see the impact of strong migration numbers over the past three years. Many of those new Calgarians are currently renting, but actively shopping the ownership market.

Tim Logel, president and partner of Cardel Lifestyles, says it’s an almost impossible challenge to try to time the bottom of the market because there can be so many variables in play.

But today’s home buyers are a shrewd and educated group, they’ve done their financial homework, are pre-qualified, and are out shopping. Show home traffic, he says, is still good. And when you have good traffic numbers that’s a good indicator that those visitors are serious buyers.

“They’ve crunched the mortgage numbers, and are continually watching the rate, not wanting to lose the opportunity that exists today when mortgage rates are so low. Seize the day, so to speak,” says Logel.

Bill Bobyk, vice-president of Sterling Homes, says the question of when to buy has always been part of the decision-making process — and likely always will be.

But, he says, there are two compelling reasons to buy now.

The first is the fact that with five-year money available at around 2.5 per cent and 10-year rates sitting under four per cent, giving consumers an opportunity to borrow cheap money.

“Not sure whether those rates will go up or not anytime soon, but true probability of them going down further to any degree are low compared with them going up considerably over the term of the mortgage,” Bobyk says.

The second is that in Calgary where the market has softened, some builders are offering “incentives” to buy.
But this could be short-lived as the supply of available, completed new homes is definitely shrinking along with the ever-decreasing supply of serviced land.

“On balance, this is a great time to buy,” Bobyk adds.