Canadians are paying more to live in this country. A lot more! As of May 2011 inflation is up 3.7 percent compared to the same time last year. Economists call this “hot inflation.” In fact Canada’s annual inflation rate has jumped to the highest level in eight years. The most staggering number is the cost of gas at the pump, its up 29.5 percent. All of this will absolutely put more heat on Bank of Canada Governor Mark Carney. He can now add, rising cost of living, to the list of issues he has to consider when setting the interest rate. Others include, strong Canadian dollar, continued high unemployment, sky rocketing home prices, record level of debt and deteriorating world economy. All Carney can do is keep rates low and, perhaps, cross his fingers hoping Canadians get through this.
These latest inflation numbers further illustrate why home sales in Canada are slowing. If Canadians find it costs more to live, they are less likely to buy a more expensive home. And if home prices are higher, they are likely to hold the one they have. A recent survey by the Canadian Mortgage and Housing Corporation found Canadians take, on average, 11 months to plan their home purchase and 88 percent indicate they have a good sense of how much they can afford. But is this enough? Rising inflation gives new homeowners a lot more to consider.
First, when writing out a future budget of the home you want to buy, consider the cost of living to go up at least 3 percent each year for the next three years. This will protect you from breaking your budget in the future. Second, with higher gas prices assess realistically how much driving you will be doing from your new home. A longer commute can add hundreds of dollars to your monthly bill. Third, make sure you have all the amenities you need and use close by. This includes a grocery store, a gas station, schools and a mall. If you’re near a store you like, and can afford to shop there, it will save on expensive emergency trips.
The same survey also finds Canadians feel its very important to pay off their mortgage as soon as possible. More than 75 percent of respondent said so. That good will should always be coupled with affordability this will ensure the journey in home ownership is starting in the right direction. But with rising costs, how realistic is this plan without cutting back. Will Canadians scale down on their luxuries, learn to live on less or abandon their plans to own their homes sooner. Almost 40 percent of recent buyers have their mortgage payment set higher than the minimum required while 20% have made a lump-sum payment since taking out their mortgage.
New homeowners in Canada are well prepared. They do their research and consult a professional for advice. Most Canadians see owning a home as the biggest investment they will ever make. Canadians are financially literate, but if inflation continues to rise at this rate, will this preparation be enough?
Writer for RateSupermarket.ca