In These Uncertain Times!

Happy New Year Friend!

In these uncertain times, many home buyers are holding off on making a decision to purchase in their near future.   A common fear is that the home pricing may keep dropping.  So what should a buyer do?  Timing any housing market is generally considered to be a losing proposition.  Trying to time the price of housing is no different than trying to time the stock market. There are many issues that may affect the timing of a purchase and given the current economic global market, I would like to recommend that you focus on the price of a home within our current market and the current level of interest rates (table below).

Many reports have stated that we may see a continuation of price erosion in the Kelowna real estate market.  The interest rates are as low as we can expect them to go; from here on in the question is not if the rates will rise, but how much and to what magnitude.  The following table is an attempt to provide insight into a hypothetical decision that a current home buyer may need to consider.  In this analysis, I provided the current average price (of a home in Kelowna and surrounding areas), and the best 5 year fixed closed rate currently available. (The house price scenarios are a drop of 5% and 10% over the current rate and for the interest rates, I looked at a rise of 0.5% and 1% respectively.)

	home price	5% price drop	10 % price drop
	$525,000.00	$498,750.00	$472,500.00
Down payment 20%	$105,000.00	$99,750.00	$94,500.00
mortgage amount	$420,000.00	$399,000.00	$378,000.00
Scenario #1:  0.50% interest rate rise
interest rate	3.29	3.79	3.79
monthly payment	$1,831.00	$1,850.00	$1,752.00
scenario #2:  1.00% interest rate rise
Interest rate	3.29	4.29	4.29
Payments	$1,831.00	$1,963.00	$1,860.00

As you can see, from this analysis, the decision to buy now or to wait can be a risky game.   It will all depend on the assumptions you make.  If you could predict that the rates will remain low for the current years to come and that home prices will keep going down, then maybe you should wait.  But, if you predict prices to continue to drop and the interest rates to rise, even by a modest amount, then waiting is of no real benefit to you.  At this current time the decision to buy now or later perhaps should not be based on these two criteria’s, but more on the underlying reason(s) you think you are considering the  purchase in the first place: is it an investment or a place to live, raise your family and feel security?

Sincerely,

Philippe Daigle