Buy while the market is affordable!

Note: posted June 2009.  -Gerald

As usual, it's a good new/bad news story; the real estate market has softened, meaning those who own have seen values drop, but those who have yet to buy likely can afford to do so. If you're not yet a homeowner or investment-property owner, then 2009 is a good year to act.

Let's set aside right off the bat the notion that ups and downs in the market might mean it's better to rent forever rather than to buy a condo apartment home, a condo townhouse, or a single-family home. The fact that values fluctuate makes no difference to the long-term security of property ownership. Eventually the mortgage on what you've bought will be paid off, giving you a secure retirement and an asset worth a heck of a lot, regardless of whether it's up or down 20% in a given year. And while the value of rental properties also go up and down, their rent rates change more slowly, yielding a stable income when other investments are on a roller coaster.

Anyway, do you really want to live with your parents for the rest of your life or stay in a poorly-maintained and perhaps unsafe basement suite? And what about the instability of renting: the landlord can ask you to leave at any time. No, if you want stability, a good-quality place to live, pride of ownership, long-term investment value, eventual ownership, and thus a lower housing cost in retirement, ownership is THE way to go.

If you agree with me, the question for first-time home and investment buyers is when to make the plunge: now or "at the bottom of the market". No one knows, of course, when the market may be at its lowest point. If you wait until that becomes clear, it will also be clear to everyone else, and by definition it will no longer be the bottom of the market, but it will be on its way back up. At that point you'll again be facing rising prices, increasing competition, and shrinking market choice. While an investment buyer can afford to be cavalier on this point, those shopping for a home to live in should not be that casual.

Simply put, those who want to own a home should move while the market is slow (now) and while interest rates are low (very much NOW!). Might both of these go lower yet? I don't know, and neither do the leading economists of the land, which happens to include the Prime Minister. But it won't matter in six months or six years whether you could have, by waiting a month or a year, paid 2% or 5% less for a home that you buy now. You'll have bought the place you wanted while there was choice available. You'll have locked in, likely for five years, at an interest rate that can't be beat. You'll also have been well housed from then on, and your mortgage balance will have started to decline after the first month of ownership.

For investment buyers, one-bedroom inner-city Calgary suites are again available starting at less than $200,000, and nice two-bedroom suites start at $220,000. Some of these come with assumable mortgages or, if you have some cash, you can put down 25 or 35% and come close to breaking even when the rent is applied to the monthly cost to buy. If there's a shortfall, that amount will likely not exceed the mortgage principal paid down each month, so it's like putting that money into a savings account. As well, a loss on operating a rental suite (not the amount paying down the mortgage, though) can be deducted from your other earned income.

So, buy to live in a home or buy to invest and rent it out, but don't let a good buying opportunity pass without acting. Failure to act when the time to act is here is called "the other remorse": the remorse of missed opportunity.