Should I Buy Now or Buy 1 Year Later in Vancouver, BC, Mrs. REALTOR®?

Rent Vs. Buy Scenario for 1^st Time Home Buyers

Typical cost to RENT 1 Bed/ 1 Bath, 600 sq.feet Apartment*:

Vancouver $1300

Burnaby/Coquitlam/Port Coquitlam/Port Moody $950

Pitt Meadows/Maple Ridge $900

Langley $850

Surrey $800

Richmond/White Rock $950

*These costs are just average and might be higher or lower depending on various factors.

What you can BUY for $230,000

Vancouver

1 Bed/1 Bath 582 sq.ft.

Burnaby

1 Bed/1 Bath 783 sq.ft.

White Rock

2 Bed/2 Bath 1,136 sq.ft.

Maple Ridge

2 Bed/2 Bath 1,098 sq.ft.

Scenario #1-BUY NOW

Purchase Price: $230,000

Minimum 5% Down Payment: $11,500

CMHC Fee: $6,008

Property Purchase Transfer Tax: $0*

Closing Costs: $0*

Mortgage Amount:$224,508 ($230,000-$11,500(down payment)+$6,008(CMHC fee))

Mortgage Payments at current 5 year term rate of 4.39%, 30 year amortization: $1,117.68

*some conditions apply

Amortization Schedule

Mortgage Amount: $224508.00 Payments Displayed: 1 - 60 Interest Rate: 4.390% Payment Frequency: Monthly Initial Amortization Period: 30 Years, 0 Months Initial Payment: $1117.68 Period Total Paid Interest Principal Balance Year 1 1 - 12 $13412.16 $9693.39 $3718.77 $220789.23 Year 2 13 - 24 $13412.16 $9528.35 $3883.81 $216905.42 Year 3 25 - 36 $13412.16 $9355.96 $4056.20 $212849.22 Year 4 37 - 48 $13412.16 $9175.94 $4236.22 $208613.00 Year 5 49 - 60 $13412.16 $8987.93 $4424.23 $204188.77 Totals: $67060.80 $46741.57 $20319.23

Comparison #1

After 5 years (based on renting in Vancouver for $1,300)

	Money Thrown Away	Created Equity
Rent + yearly 3.7% increase	$80,886	$0
Home Ownership	$0	$20,319.23

Many will argue that you waste your money on interest. Assuming this point of view, you're still better off owning than renting because if you ever want to have your own home you'll buy one day and start paying interest anyways.

Comparison #2

Let's call interest payments "Money Thrown Away"

	"Money Thrown Away"	Created Equity
Rent + yearly 3.7% increase	$80,886	$0
Home Ownership	$46,742	$20,319.23

Scenario #2-BUY LATER

"I wait another year for prices to drop another projected 10% (nobody has a crystal ball)."

More likely interest rates will not stay the same and let's assume 5 year fixed goes up to 6.5%.

New Purchase Price: $207,000

Minimum 5% Down Payment: $10,350

CMHC Fee: $5,407

Property Purchase Transfer Tax: $0*

Closing Costs: $0*

Mortgage Amount: $202,057 ($207,000-$10,350(down payment)+$5,407(CMHC fee))

Mortgage Payments at current 5 year term rate of 6.5%, 30 year amortization: $1,353.43

*some conditions apply

Mortgage Amount:	$202057.00	Payments Displayed:	1 - 60
Interest Rate:	6.500%	Payment Frequency:	Monthly
Initial Amortization Period:	25 Years, 0 Months	Initial Payment:	$1353.43

---

Period	Total Paid	Interest	Principal	Balance
Year 1	1 - 12	$16241.16	$12861.08	$3380.08	$198676.92
Year 2	13 - 24	$16241.16	$12637.81	$3603.35	$195073.57
Year 3	25 - 36	$16241.16	$12399.81	$3841.35	$191232.22
Year 4	37 - 48	$16241.16	$12146.08	$4095.08	$187137.14
Year 5	49 - 60	$16241.16	$11875.55	$4365.61	$182771.53
Totals:	$81205.80	$61920.33	$19285.47

Comparison #1

After 5 years (based on renting in Vancouver for $1,300)

	Money Thrown Away	Created Equity
Rent + yearly 3.7% increase	$80,886	$0
Home Ownership	$0	$19,285

Many will argue that you waste your money on interest. Assuming this point of view, you're still better off owning than renting because if you ever want to have your own home you'll buy one day and start paying interest anyways.

Comparison #2

Let's call interest payments "Money Thrown Away"

	"Money Thrown Away"	Created Equity
Rent + yearly 3.7% increase	$80,886	$0
Home Ownership	$61,920	$19,285

BUY NOW VS. BUY 1 YEAR LATER ANALYSIS¹

	Scenario #1: Buy Now	Scenario #2: Buy 1 Year Later (10% price drop assumption)	Gain(+)/Loss(-)
Purchase price	$230,000	$207,000	+$23,000
Mortgage Payments (over 5 year term)2	$67,061	$81,206	-$14,145
CMHC fee	$6,008	$5,407	+$601
Rent Pmts (during 1st year)3	$0	$15,600	-$15,600
Rent Pmts Increase (Max 3.7%)4	$0	$577.200	-$577.200
Total Cost to Buy	$303,069	$309,790.20	-$6721.20

1-This is a Buy Now vs. Buy 1 Year Later Scenario with assumption of 10% price drop. It's not Buy vs. Rent Analysis. It doesn't take into consideration expenses like property taxes, utilities, closing costs etc. Because it compares Buy Now vs. Buy Later options rather than Buy vs. Rent!

2-Interest rate shown is fixed 5 year term rate at 4.39% currently and assumption of 6.5% in future.

3-You still incur rent payments during the year you're waiting for prices to drop more. If you buy now you start paying mortgage payments now which you have to start paying eventually anyways if homeownership is in your plans.

4-Currently allowable maximum rent increase in BC is 3.7%

Conclusion: In particular example your savings (loss) amount to -$6,721.20 assuming interest rate will be 6.5% if you wait another 10.5 months for a projected 10% price drop.Nobody knows what interest rates will be like in a year or how much more prices will drop. Nobody has a crystal ball. I have worked through this scenario to show how much expected price drop will affect your savings. Just remember, interest rates are historically low right now to stimulate and increase consumer's confidence. Once economy stabilizes interest rates will go up and on average they have been around 6.5% in previous years and much higher before.

It's up to you what you do with this information. My job is to inform the public, your job is to make a decision. Happy decision making!

In my future blog post, I will work through the scenarios of getting a mortgage at a variable rate, currently 3.8%, and buying a house with a mortgage helper.