• Is Now A Good Time To Buy A Home?

    November 24, 2020
  • Is Now A Good Time To Buy A HomeIs Now A Good Time To Buy A Home? Are Home Prices Providing Good Value vs. Price?

    Today we will review if home prices provide good value, or are prices too high? Robert Floris and Sean Howard of Mortgage Architects have been studying the definitions of value against cost. All investment decisions are based on perceived value, this gets confused with what price may be paying. If we are buying homes, cars, food, clothes and trips, we look at the perceived merit of what we are buying. Let’s take an example at the supermarket. If you normally pay for steak approximately $20/pound or less, but this week the price is $30/pound, you can afford it, but you do not see the merit of buying it. You may select chicken or hamburger instead. Now, let’s review how we may apply this to owning a home.

    Now, before we begin, let’s add a warning. In Canada, we all must adhere to a stress test. To qualify for these amazing great rates, you must qualify for a mortgage at 4.79% (currently) which is what all financial institutions make us do.

    In terms of home purchasing, the number one question should always be, can I get a mortgage based on my income and still achieve value? Let’s explore with a $450,000 mortgage. Again, am I getting comfort and level based on my income. Using the following model we can determine our thought process:

    Year: 2020
    Rate: 2%
    Amortization: 25 and 30 year

    At 2%, here are the following payments of principle and interest only:

    25 years: $1905.53/mth
    30 years: $1661.42/mth

    Given the price of rent, a consumer can now compare whether this makes sense.

    In 1981, rates were 18%, for a $450,000 mortgage, let’s compare:

    25 years: $6598/mth
    30 years: $6547.16/mth

    The home has not changed, the value of the asset has changed based on the interest rates. Clients can afford and do feel better with today’s rates. As compared to renting, it makes total sense.

    Using the same model and 18% interest, the house price would have to be $130,000 to get the same price.

    Is Now A Good Time To Buy A Home? Housing affordability is simply the “cost” of a home relative to your income. It is not the price of the home that matters, it is the monthly payment. Today’s interest rates make homes affordable.

    Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

    If you would like to apply for a mortgage online, please followthis link.

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