It’s a brand spanking new year – and the predictions are already in as to whether the Canadian mortgage market will improve. Some headlines are touting better times ahead as market activity moderates and a crash seems less and less likely – this while others despair from increasingly out-of-reach home affordability.
Let’s break down the forecasted outlooks for 2013.
You Thought 2012 Was Bad? Prepare for 2013!
Today’s main issues surround affordability. Do today’s new home buyers have a chance to obtain financing? Will current homeowners continue to see price drops hurt their home investment, or be blindsided by those inevitable interest rate hikes?
While some argue that softening prices offer opportunity for buyer segments, prices haven’t done much adjusting over the past few months, and have hardly promoted sales. Combined with the increasing expenses of home ownership, and the dampening effects of new mortgage rules, this has some analysts worried what 2013 will hold.
The affordability gap has been exaggerated over the last 15 years as average home prices appreciate past what can be offset by gains in income. John Andrew, professor at Queen’s University School of Urban and Regional Planning says home buyers have become too complacent on record low borrowing rates. “There is going to be a very rude shock to the system once mortgage rates move up,” he said in a report by the Globe and Mail. “Rates have been low for enough years that people have forgotten how unaffordable houses really are.”
Which Way Is Up?
There’s no denying that home buyers are faced with a raw deal. It’s the classic tale of the rich are getting richer and the poor are getting poorer. First time home buyers feel that they are just spinning their tires in today’s economy, especially the ones who had to pay for their schooling and are in debt as a result. How do you get ahead? You take out a loan to fund your education because that is the only way that you’ll even be considered for a job, but finding that golden job is easier said than done.
Once you land (or settle) for that job, you’re focused on getting out of the red and into the green! Ahhh the green, the key to home ownership; but it doesn’t happen overnight. It can take years, or even decades to pay off debt and save for a down payment without a great paying job. But wait a minute… this isn’t supposed to be how it goes! You’re supposed to get the education, to get you the job, to pay for your home and be in your first one by the time you’re near 30 right? Wrong!
Reality Check Those Expectations
Home ownership may seem an impossibly daunting goal – but the day will come when you will be able to afford a home. For many that day seems to be off in the distant future, but in the pricing/affordability tug-o-war, majority rules. Prices can’t stay at current levels if the average household income isn’t picking up the slack. Eventually something has to give – and my money is on home prices. Until they do, don’t discredit your renting options!
Your rent payment likely makes up a large portion of your monthly expenses but have you taken the time to check out all of the other items on the list too? Our society prides itself on luxury items, lush vacations, dinners out and the latest and greatest $600 cell phone. So, how are you actually supposed to save for a downpayment between gadgets and rent payments? You won’t with that attitude.
As it seems our parents’ generation were savers and our generation are spenders, we need to make the shift and try cutting back (it’s so simple, it actually might work!). Make a financial plan and stick to it. Start small, by saving $100 from each paycheque or even putting the money you would have spent on a coffee or a lunch out in your savings account – after all every little bit counts!
RateSupermarket.ca Week in Review
Not much movement to be seen so far in the new year. Three-year fixed took a shallow dip down one basis point from 2.69 to 2.68. Five-year variable also dropped, lowering five basis points from 2.60 to 2.55 per cent.