When is the best time to buy?
Deciding When to Buy
Factors to consider include your personal situation, and your judgment
of whether the market will be going up or down, that is, "market
timing". Here are a few tips:
Over the long term, the experts generally agree that B.C. Lower
Mainland real estate will increase in value, mainly due to the
predicted increase in population. Although growth has slowed, B.C.
continues to experience a net population growth.
It is usually possible to get a good idea of whether prices are
currently going up or down by consulting a busy realtor. Note, though,
that the price direction frequently depends on the particular type of
property and the particular location. Even when the market is widely
falling, there are some areas that are still rising, and vice versa.
For example, from May 1997 to May 1998 most B.C. Lower Mainland real
estate fell somewhat, but condos in East Vancouver rose in average
price. An experienced realtor can often make a reliable judgment of
price trends based on a wide range of indicators. For example, the
numbers of property "showings" and "purchase offers" become known
through the grapevine of realtors. These indicators show the newest
price trends weeks or months before actual sales do, because of their
greater volume and because of the delays in reporting of actual sale
prices. (In Vancouver information is available by request through
davidvalente.com
Spring and fall usually have greater market activity, and a wider
choice of reasonably priced properties for sale, than summer and
winter. However, looking back over many years it is clear that no
season is predictably the least expensive time to buy in this area.
Sometimes the best time to buy is when nobody else is looking: a
little-known secret is that there is usually a noticeable drop in
prices at the end of December, creating an opportunity of which very
few buyers take advantage. The drop may reflect a supply and demand
imbalance caused by some investors needing to sell before year-end for
tax purposes, at the same time that buying has stopped because most
buyers are busy with holiday festivities.
Published statistics, such as weekly average price charted over time,
are of little help in determining whether prices are currently going up
or down, let alone predicting future price movements.
(Basically, the statistics are always a little bit
too far out of date to help with "market timing". More specifically,
the reason is related to the fact that even in a large market like that
of the Lower Mainland of BC, there is considerable random fluctuation
of the graphs up and down from month to month. This random fluctuation
is a function of which particular properties have sold and does not
reflect an actual market trend. Consequently, it takes two to six
months before a trend will show up clearly in the statistics. By then
the market will often have started moving in a different direction, but
the new direction will not be clear from the statistics until several
more months have passed. Recently the local real estate boards have
come up with a Housing Price Index to track price inflation, but even
this is inadequate for market timing purposes.)
Should you buy a condo prior to or during its construction? After all,
the ads proclaim there are "ONLY 17 LEFT!" Those who have experience in
buying before construction is completed often advise against it,
according to a survey of purchasers in Greater Vancouver reported in
the Real Estate Weekly. When condos are sold to the public long before
they are finished being built, it means the big investors have decided
it is more profitable to sell than to buy at that time and price.
More than half of B.C. residents move at least once in five years.
Obviously "the best time to buy" is not when there is a possibility you
will soon be forced to turn around and sell due to a job transfer,
marriage, or job loss. This is because of the fees, taxes and other
transaction costs, which your realtor can estimate for you. The total
costs of buying and subsequently selling can amount to approximately
five to twelve percent of the value of the property, so hopefully you
are buying at a time in your life when you will be able to keep the
property a reasonable length of time, over which to spread these buying
and selling costs.
(Also, the longer you hold the property, generally
the more reliable the return. For example, a study of six Fraser Valley
communities found that the price of a typical house, averaged over 3
years, increased only 0.8% per year; but averaged over 5 years the
price increased 5.0% per year--so obviously it was safer to have owned
for the longer period. In another study, over a period of 10 years an
older home in Vancouver increased at 11% per year (compound rate; 19%
un-compounded), which compared favorably with mutual equity funds which
averaged 8% per year and mutual bond funds which averaged 9% per year
during the same period. A Canada-wide study found houses increased in
value at the same rate as the TSE 300 over the 15 years from 1980 to
1995. However, "past performance is not necessarily indicative of
future performance" in any investment vehicle.)
If you are a first-time buyer, the standard advice is to save up a
reasonable down payment in order to maximize your buying flexibility
and minimize your interest costs, and then "BUY AS SOON AS POSSIBLE!"
Actually, if you are employed, "reasonable" minimum savings could be
anywhere from 6.5% to 35% of the purchase price depending on your
circumstances, so general advice isn't too helpful. Infrequently,
properties are even bought with a zero or 1% down payment. You can
substantially reduce the cost of mortgage insurance by waiting until
you have a large down payment.
Often it's said "better to be paying towards your own equity
(ownership) than into your landlord's pocket". From an investment point
of view, that is generally true--most people who buy a home develop
vastly greater wealth than those who do not. However, the question of
when a particular renter should jump to ownership is somewhat
complicated. As long as housing prices are relatively stable, one of
the important questions to answer is whether your current rental
payments are greater or lesser than the comparable costs of ownership.
These "comparable costs" are the sum of (a), (b) and (c) where (a) is
the interest portion of the mortgage payments you would be making (that
is, the monthly mortgage payments MINUS the principal portion), (b) is
the foregone interest on the down payment (that is, the amount you
would earn if you invested it elsewhere), and (c) is the sum of other
costs (e.g. annual taxes and maintenance).
If you own your present home, you are likely going to sell it when you
move. (Those who own real estate can sometimes buy additional
properties for investment purposes without selling their holdings and
without any down payment, but the associated risks must be carefully
weighed.) If you will be selling your present home to finance the
purchase of another, it is generally advisable to sell first and then
buy, if possible. Alternatively, you can arrange a contract to buy a
home "subject to the sale of your present home", but then your price
and terms are likely to be less favorable than if you had already sold.
However, buying first is less problematic in some circumstances, such
as if you happen to be the owner of a Vancouver heritage home in the
lower price range, since these are in a "seller's market" at the moment.
One last tip on the subject of "when to buy": When you see ads seeking
investors for a sure-fire real estate development bonanza, invariably
in another province or country making it difficult to investigate
thoroughly, you are usually NOT looking at a once-in-a-lifetime golden
opportunity where "you should buy immediately or lose out forever".
Thousands of investors have lost their savings in M.U.R.B.s and other
developments. As one writer put it, there are NO investments that offer
both security AND a 16% return on investment!
Prudential Sussex Realty
Committed Service. Real Estate Sales.
Real Estate North Vancouver. Real Estate West Vancouver. Real Estate
Downtown Vancouver. Real Estate in the Lower Mainland. Buy and Sell
Real Estate. Specialized in Real Estate. Dave Valente