To jump or not to jump.
I guess the question that plagues new home buyers is "should we jump in now, or should we wait to see if the market is still dropping?"
Well, if you know someone in this situation, they may have already missed the bottom.
Let's take a few key indicators of what's going on in the market : - Because of the low interest rates there has been a flurry of new home buyers who didn't have to sell their home because they were renting.
People didn't want to list their homes because of the price drop so inventory of houses for sale went down and seems to still be dropping. - What this means is there are fewer homes for sale in the market. - When this happens, prices start to go up. - Now the economy seems to be on a slow but steady road to recovery. - Oil prices are on the way back up (great for the industry in Alberta ). - More jobs in this sector are being created once again which in turn creates jobs in other sectors. - Our banking system is strong (compared to the rest of the world.) - People are feeling better about things. - Take an improving economy and what happens to interest rates? - With people feeling better about the economy more people jump from the safe bond market back to other more risky investments.
When this happens, the bond yield increases. When the bond yield increase so do the fixed rate mortgages.
OK, I have indicated that there is some motivation to jump in to the market because of the low interest rates and the low prices that seem to be increasing.
So, what other motivating factors are there?
The banks and the government have stepped up to the plate to encourage new home buyers to take action: - The banks have decided to create quite a few programs to motivate the home purchaser. - No down payment. The banks call it a cashback mortgage.
There are only three that I know of that will allow you to apply the five per cent or close to that towards the down payment.
Of course, the banks want some protection so they want to make sure you have a good credit score, anywhere from a beacon score of 620 and up.
The lower your credit score, the higher the interest rate. Also, you must have a good job.
It probably won't work for those of you who are self-employed. - The other bank-driven incentives are the quick-close specials. These super low rates are offered to homes that you take possession of within 45 days (some are 30 days).
At the moment, the rate I like is the 3.05 per cent, three-year fixed, quick close rate offered by Street Capital. - The government has also stepped up to the plate. Besides dropping the prime lending rate to a historic 2.25 per cent, the government offered some major incentives to the first-time home buyer.
These include: - A change to the first-time home buyers RRSP plan. This program increased the amount a person can withdraw from his or her RRSP from $20,000 to $25,000.
For a couple purchasing a home this equates to $50,000 without penalty provide you pay this back to your RRSP within 15 years. - Anew first-time home buyers' credit towards closing costs. This program provides up to a $750 tax credit.
Refer towww.fin.gc.cafor more details.
This is what is happening at the moment. Interest rates are on the move up once again and house prices are on the move.
So for those waiting for the bottom, it seems to have come and is sailing away.
Now, I'm not saying the deals are gone. That would be an incorrect statement.
There are great deals to be had at still historic prices--but there is no bottom to wait for. Get in now, as your property will only increase in value--and the interest rate you see now will be gone soon.
By Vic Cotton, Calgary HeraldJune 6, 2009
