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By: Penelope Graham
Penelope Zoocasa
Penelope Zoocasa

Thinking of getting into the real estate market? Whether you intend to dwell in your new home or hold property as an investment, there is a lot for aspiring buyers to consider. After all, buying a home is the largest transaction many Canadians will ever make. It is important to take an educated approach and spend your hard-saved down payment funds wisely.

Understanding market conditions is the first step to savvy homeownership. However, while there are plenty of regular reports that track real estate prices, sales and demand across the nation, remember that home values and markets vary widely by region – and even from neighbourhood to neighbourhood. For this reason, buyers need to assess markets at a local level, and working with an experienced real estate agent who has in-depth knowledge of your desired area is crucial.

Here’s what buyers need to keep in mind when making their move into the real estate market.

House or condo?

It is no secret that Canadian real estate is expensive – growing unaffordability for buyers has been a hot topic in the media for the past several years, especially in competitive markets such as Toronto and Vancouver. However, recent rule changes (including a foreign buyer tax, speculative buyer tax and empty homes tax) introduced in these cities have calmed the number of sales and reduced prices slightly for some home types in the past few months. Even so, purchasing a detached house in either city is still financially out of reach for many local residents. The average September house price was a whopping $1,617,300 in Vancouver, and $1,355,234 in Toronto.

No wonder condos remain in high demand. They are resisting slowing sales trends in both cities, with demand greatly outpacing that of other home types. The average condo costs $635,800 in Vancouver, and $554,069 in Toronto – still within the realm of affordability for many first-time and move-up home buyers.

Comparable solds:

This refers to the sale prices of similar homes in a specific area – for example, one-bedroom units within the same condo building, or two-storey houses on the same street. Understanding what other homes have sold for, and how long they remained on the market, helps agents and buyers put together a solid offer strategy. “Comps,” as they are referred to in the industry, are also used by mortgage lenders and appraisers when qualifying a borrower for their home financing.

Sales-to-listings ratio:

This number is a metric used to determine whether a market is more favourable to buyers or sellers. It is established by dividing the total number of sales during a specific period by the number of active listings on the market. According to the Canadian Real Estate Association, a ratio between 40-60 per cent indicates a market is balanced, while below and above indicate buyer’s and seller’s markets, respectively. This ratio reveals how in-demand homes in a specific area are, and whether you’ll encounter competition from other buyers in the form of bidding wars and bully offers.

Timing your purchase:

The golden rule of stocks is to buy low and sell high – and most buyers try to take this approach to real estate, too. However, it’s important to realize that you can’t time the market. Most buyers will make their move when home prices are on their way up or down, but it is difficult to guess when they’ll hit an absolute bottom. Instead, smart buyers take

into account whether their finances work in current market conditions, and how long they plan to live or invest in their new property. Many real estate experts recommend planning to live in or hold a home for at least five years – selling sooner exposes homeowners to short-term market fluctuations, as well as the compounded impact of land transfer tax and agent commission fees, which offset any short-term equity gained in the property.

Mortgage costs may soon change:

The amount of mortgage you may qualify for will make or break your home buying budget. The reality for many buyers is that it will soon be tougher to get home financing. New mortgage rules implemented in the fall by Canada’s banking regulator require buyers paying more than 20 per cent down on their home purchase to add two per cent to whatever mortgage rate they are applying for. While their actual mortgage payments will be at the original contract rate, they must prove they can afford the additional two per cent threshold. This, combined with recent rate increases from the Bank of Canada, puts pressure on borrowers, and may reduce affordability. At press time, the Office of the Superintendent of Financial Institutions announced these changes would come into force likely by the end of the year or early in the new year. If that is the case, buyers who are looking to make a move in the short term should get a pre-approval before these changes come into effect.

Penelope Graham is the managing editor of Zoocasa.com, a leading real estate resource that combines online search tools and a full-service brokerage servicing Canadians who want to effectively buy or sell their homes.