Buy or Wait?

Always a good question....

Should I buy now, or Wait?

I have discussed this topic with many people recently. The general thinking is that prices may fall a little so maybe waiting to buy real estate is a good plan to save some money on the purchase. What people fail to consider are the numerous factors that come in to play besides the price of the house itself.

In this post I will focus on first time buyers as it is this simplest situation. I will post again soon with an analysis for move up buyers.

So here are some considerations besides the price of the house

1. Federal Government Temporary Home Renovation Tax Credit can save you up to $1,350 on improvements on your new home. Most people buying a new home immediately undertake minor renovations

2. Federal Government Temporary First Time Buyers’ Closing Cost Credit of $750

3. Provincial Government First Time Buyers’ Land Transfer Tax Exemption up to $2000 (unknown how long this program will remain in effect)

4. Interest Rates at Historical Lows.
-If rates rise 1.5% in the 18 months (the same as they have fallen over the last 18 months), then over the 5 year term of a $200,000 mortgage (10% down on a $200,000 house the savings (+/-) would be $14,400. This is accomplished through savings in actual payments which are approx and also approx $4,200 additional principal being paid off with the lower rate.
-With the lower rates, the house is easier to pay for too because your payments would be approx $200/month cheaper
-As a bonus if you really want (although I never recommend going to your max approval) the lower payments mean you would also qualify for an additional $35,000 mortgage so you could expand what your options in terms of finding the right house.

5. Finally- let’s assume you are renting for $1200/month for the 18 months. That is $21,600 that you are giving to your landlord. During the same period owning you would pay $7500 interest to the bank on the $200,000 mortgage. This means that you save $14,000 in the next 18 months by owning instead of continuing to rent.

So let’s do the math add it all up…

Assume you wait 18 months for a $200,000 to drop 5% to a $190,000 price tag. Yes it is true you will save $10,000 on the house if the market does in fact drop 10%. (Our local Niagara outlook is estimated to drop by up to 5% this year and increase approx. 1% in 2010). Let’s go even a step further for the true gamblers and say house prices drop by 10%. That means the $200,000 house will then be $180,000 saving you $20,000 on the house price. We’ll use that number



WAIT TO 18 MONTHS TO BUY AND YOU SAVE
$20,000 on the house of the price
* if in fact prices drop as much as 10% over the next 18 months
(which, for the record, I personally don't believe they will here in Niagara)

OR…

BUY NOW AND SAVE:

$1350 on renovation tax credit
$750 on closing cost rebate
$2000 on land transfer tax rebate
$14,400 saving due to historically low interest rates
$14,000 saving by paying yourself and the bank VS. paying a landlord

GRAND TOTAL SAVINGS: $32,500

Ultimately, the answer to the question, “Should I buy now, or Wait?” seems like a no-brainer on the financial end (once all factors are accounted for, not just the asking price of homes).

Plus, there is something far more important then money- the pride of ownership that comes with having your own home. There is truly nothing better then the feelings of accomplishment and satisfaction that come from home ownership. Your landlord will not be too pleased to see you leave, but I bet that will put a big smile on your face too!