Question: My boyfriend and I are hoping to move from renting to buying a condo. We don't mind renting, but prices are getting kind of crazy in Downtown Toronto and we figure now is the time to take the plunge for a condo. Do you think condo prices have bottomed out?
Answer: While I can't see into the future, nor would I try to speculate on whether condo prices have bottomed out (I'll leave that to the expert economists) – I do believe there may be a compelling case to buy if you can afford to do so.
It is very true that rents are getting pretty crazy these days, yet demand doesn't seem to be slowing down. Just earlier this week The Globe published an article about the increasing rent prices in Toronto.
Consider that the average one-bedroom rental in the second quarter of this year was approximately $1,600 a month in Toronto, and even more in the downtown core - $1,730. For a few hundred dollars more a month and a reasonable down payment, you could own a place for yourself.
And why wouldn't you?
Well, for one – many experts have been predicating a condo crash, but they have been doing so for the last 15 years! Suppose there is a crash, as a homeowner who intends to reside in the condo versus an investor who is looking at it solely from an economic perspective, you wouldn't be too adversely affected.
This is because most people will live in a home about 4 to 5 years, and assuming their monthly costs are fixed, they should be able to weather a dip in the market. Historically the housing market has been cyclical and it bounces back within that timeframe.
In the second quarter of 2013, the average condo price in Toronto proper (i.e. 416 area code) was $372,805.
Let's say you decide to buy something slightly above the Toronto average at $400,000 as an example. With today's mortgage offerings, you could hypothetically get a 5-year closed mortgage with a 25-year amortization for 3.5 per cent interest. Assuming you put the minimum 5 per cent down payment required, and factor in CMHC mortgage insurance, you would be paying about $1,955 a month.
Of course, the monthly figure above does not factor condo maintenance fees, which can vary widely among different buildings. I advise my clients to stick within the 50- to 70-cent per square foot range for maintenance. Also carefully consider what amenities you are paying for and if they provide value to your lifestyle.
One final factor to calculate into your costs of purchasing would be Land Transfer Tax (LTT). As a first time homebuyer you will be eligible for a rebate of up to $5,725 in the City of Toronto (only $2,000 for the rest of province due to double LTT in Toronto) . In the $400,000 example above, you will be paying $2,475 out of pocket after rebates.
The decision to continue to rent versus buying may not be so black and white. Careful analysis of your finances, particularly your ability to come up with a down payment will help guide you in the right direction.
Finally, asking yourself how your lifestyle may change in 3 to 5 years is of equal importance in the decision-making process: Will you outgrow your place? Are you planning on starting a family? Where will you be in your career?
These are just some of the questions you need to be asking yourself when making the decision whether to rent or own.
Ricky Chadha is a broker with Royal LePage Estate Realty in Toronto, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.
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