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Buying a home in Canada is an expensive proposition, more so now than before.
The average price of a home sold through the Multiple Listing Service in October was $419,699 -- up 7.1 per cent from $391,931 in October 2013. That’s according to new numbers from the Canadian Real Estate Association (CREA), which reports on the market each month.
Such high costs have many wondering whether it’s a good idea to buy and what they should watch out for.
While everyone’s decision-making process will be different, here are a few things worth considering when shopping for a home.
THE MARKET COULD FALL
Many people who bought homes in Canada in the past decade have profited from rising house prices.
But home prices sometimes fall, says Paul Anglin, a real estate professor from the University of Guelph.
“Most people get excited about the rising part,” he says. “They forget about the falling part.”
Fresh in the minds of many is the 2008 U.S. housing market crash, which left millions of Americans with homes worth less than they had paid. Prices have mostly recovered, but many lost money in the meantime.
Markets have crashed in Canada, too. For example, from 1990 to 1996, prices dropped every year in Toronto.
Both The Bank of Canada and Moody’s have warned recently that a crash could happen again in Canada, especially if the economy slows down.
LOCAL MARKETS DIFFER
Housing markets tracked by CREA vary widely by city. Prices are up 9.5 per cent year-over-year in Calgary, 8.3 per cent in the Greater Toronto Area and six per cent in Greater Vancouver.
However, they were flat in Saskatoon, Ottawa, Greater Montreal and Greater Moncton -- and down 3.4 per cent in Regina.
The eye-popping increases in Toronto and Vancouver are likely because “lots of people want to move there and there’s limited space,” says Anglin.
Calgary is a different story, however, because it’s highly dependent on the success of the local oil extraction economy, which is tied to the global price of oil.
Although Calgary has been booming for years, global oil prices have recently started to fall. “If the price of oil stays low, then [a crash in Calgary] is exactly what you would expect,” says Anglin.
TRANSIT LINES CAN BOOST VALUE
Living close to good rapid transit options can boost the value of a property for obvious reasons – people want the shortest possible commutes.
“You want to be in a place that is convenient -- or that will be convenient,” says Anglin. In other words, don’t just consider existing transit lines, but also where proposed transit could be built.
Think about SmartTrack in Toronto or the Broadway Subway proposal in Vancouver.
“But you also need to figure out how much inconvenience there will be during construction phase,” says Anglin. Buyers who end up too close to a new train station might have to put up with years of dust and noise.
BUYING AN UNBUILT HOME CAN BE RISKY
Buying pre-construction can be appealing, because everything will be new once the home is done.
It can also be risky.
“If you’re buying from a plan, you don’t know what will actually be there,” says Anglin.
For example, those who buy a condo from a plan, do not know who else will be in the building, he says.
Some buildings have a large proportion of renters, who may be noisier or dirtier than owners who live in their homes.
It’s also worth keeping in mind that condo fees are more predictable after a building has been up and running for a few years, says Anglin.
And while buyers used to get a discount in exchange for the unpredictability, as TD Bank pointed out earlier this year, resale condos may now be a better deal.
HOW LONG DO YOU PLAN TO STAY?
Potential buyers need to ask themselves how long they plan to stay, because the longer they are willing to stay, the lower the risk of being forced to sell when prices are low.
“If you plan to be in some place for a year, maybe you should be renting,” says Anglin.
“If you plan to be there for 10 years,” he says, “the monthly wiggles on the average price probably don’t matter, because 10 years from now, economic conditions will be very different.”