By Ann Perry, Toronto Star

To buy or not to buy?

That is the ques­tion fac­ing poten­tial first-time home­buy­ers who are weigh­ing the ben­e­fits and risks of jump­ing into the hous­ing mar­ket in the midst of the recession.

Until recently, many first-time buy­ers were priced out of real estate mar­kets in major Cana­dian cities by fren­zied bid­ding wars that sent prices into the stratosphere.

But the global reces­sion has brought many hous­ing mar­kets back closer to earth and, in the process, pre­sented oppor­tu­ni­ties for first-time home buy­ers. House prices have fallen in many cities. So have mort­gage rates. That means that buy­ing a house has become more afford­able. But buy­ing and bor­row­ing costs aren’t the only fac­tors poten­tial home­buy­ers have to consider.

The reces­sion has sent spasms of fear rip­pling through the job mar­ket. Cana­dian employ­ers have shed 357,000 net jobs since Octo­ber, push­ing the unem­ploy­ment rate to 8%, a seven-year high. Econ­o­mists are warn­ing the job­less rate will likely con­tinue to rise, with some fore­cast­ing 10 per cent unem­ploy­ment by next year.

Com­ment: Except that we saw 36,000 new jobs cre­ated in Ontario in April. But of course, that is just a blip, a mis­take, the world is still going to end. Why is that com­men­ta­tors, pun­dits, talk­ing heads and the press will give acres of cov­er­age to bad news, but when there is a bit of bright light, it is buried under the obit­u­ar­ies on the back page? Isn’t good news good?

That has left poten­tial home­buy­ers in a dilemma. Can they afford to pass up a chance to get into the hous­ing mar­ket? At the same time, can they afford to make the biggest pur­chase of their lives when few jobs seem secure?

Com­ment: When have jobs ever been secure?

The best way for first-time buy­ers to assess whether they can com­fort­ably afford to buy in the price range they are con­sid­er­ing is to apply for a pre-approved mort­gage, said Karen Leggett, head of home equity financ­ing at the Royal Bank of Canada. That process involves tak­ing a close look at your down pay­ment, house­hold income, debts and lia­bil­i­ties, esti­mated monthly hous­ing costs and spend­ing patterns.

In this uncer­tain employ­ment envi­ron­ment, poten­tial home­buy­ers also should make sure they have built up an emer­gency fund to cover their mort­gage costs if they lose their jobs, Leggett added.

“I think if you’ve cov­ered off those bases, then you should be able to rel­a­tively com­fort­ably and con­fi­dently be able to pro­ceed with your pur­chase.” Leggett said.

Leggett said that she has been hear­ing anec­do­tally that “a lot of first-time buy­ers are using this as an oppor­tu­nity to get into the mar­ket.” But she acknowl­edged that grow­ing job inse­cu­rity is keep­ing some poten­tial buy­ers on the sidelines.

“At the end of the day, if you don’t really have employ­ment cer­tainty, whether it’s the best buy­ers’ mar­ket there ever has been, that prob­a­bly doesn’t change your decision.”

“But if you do have some employ­ment cer­tainty, you have a rea­son­ably good credit pro­file and you have your emer­gency fund, and you’re sort of secured for a nor­mal course of events and even some­what a down­turn in events, then rea­son­ably you have to con­tinue to live your life and move for­ward,” said Leggett said. “It is a good time to buy if you can cre­ate some cer­tainty around those parameters.”

Leslie Fal­laise, an out­side mort­gage agent with North­wood Mort­gage Ltd., said first-time home­buy­ers are feel­ing “stressed and pres­sured” by con­flict­ing messages.

On one hand, “they’re hear­ing great low inter­est rates – this is the time to do it, you’re never going to see this again,” she said. But some are also won­der­ing if the hous­ing mar­ket has really bot­tomed out yet.

Com­ment: The Toronto mar­ket bot­tomed in Decem­ber. Sales vol­ume was down 45% in Novem­ber, 55% in Dece­me­ber, 45% in Jan­u­ary, 20% in Feb­ru­ary, 10% in March and around 7% in April. Fol­low the num­bers, we went down and then headed back up. I can­not for the life of me see sales vol­ume drop­ping 50% from where we are now, which is what would have to hap­pen for the bot­tom to still be ahead of us.

Stock mar­kets are up in North Amer­ica, our dol­lar is up, job loss has slowed (or even ended with new jobs being cre­ated in Ontario last month for the first time since last year), real estate sales and prices are ris­ing. The weather is good, peo­ple are feel­ing bet­ter. Unless this is all some big illu­sion, mis­take, blip… then how is bot­tom still ahead of us?

By the same token, many mort­gage lenders are appre­hen­sive and are tend­ing to err on the side of cau­tion., Fal­laise said.

“I do know that there are no slam-dunk deals right now for first-time home­buy­ers,” she said.

Com­ment: Except that is you have a decent job, a down pay­ment and go after a house that is prop­erly priced – then you will have no prob­lem. I have not had a financ­ing issue yet this year, in quite a few deals. Any­one who is on the line, who is ques­tion­able, then they may have an issue as has been the case before. Noth­ing new here.

Janet Freed­man, a finan­cial plan­ner with Toronto-based Finance Mat­ters, cau­tioned that first-time buy­ers shouldn’t be overly wor­ried about miss­ing a buy­ing opportunity.

“I think they should be far more con­cerned in mak­ing sure they’ve got all their ducks in a row before they start look­ing for real estate,” she said.

The most impor­tant con­sid­er­a­tion is how secure your job is.

Com­ment: And how does any­one know that? Before I got into real estate, I worked for years in the inter­net indus­try. Through the dot com boom, when we were all paper mil­lion­aires, did any of us think our jobs were secure? A hand­ful of stock options one day and a com­pany out of busi­ness the next. This is not the 1960s, there are no more jobs for life. Not hav­ing job secu­rity is noth­ing new, no mat­ter how much peo­ple try to por­tray it that way.

“That is some­thing that peo­ple really need to look at very care­fully,” Freed­man said.

Like Leggett, Freed­man coun­sels peo­ple to have money in the bank to cover mort­gage pay­ments in the event of job loss.

Freed­man also advises peo­ple to have a min­i­mum 20% down pay­ment, and to take advan­tage of the fed­eral government’s Home Buy­ers’ Plan. The plan allows first-time home buy­ers to with­draw up to $25,000 tax-free from their reg­is­tered retire­ment sav­ings plan to pur­chase a home. Any with­drawal must be repaid within a 15-year period, start­ing the sec­ond year fol­low­ing the year in which a with­drawal was made.

Com­ment: With the aver­age house price in Toronto around $365,000 these days, I am sure there are a lot of first time buy­ers who have $73,000 lay­ing around to use as a down pay­ment. Even with $25,000 from an RRSP, that means almost $50,000 in cash. Plus clos­ing costs. A nice thought, but noth­ing close to reality.

First-time buy­ers also need to be very care­ful not to get car­ried away.

“Even if the bank tells them that they’ll lend them a cer­tain amount, they need to look at what their actual costs are going to be – the mort­gage costs, the prop­erty taxes, which we all know are going up by leaps and bounds, util­i­ties, and repairs and insur­ance, and all those things, and really work out whether they can afford it in their bud­get,” Freed­man said.

Com­ment: Prop­erty taxes went up 4%, hardly leaps and bounds. Gas and hydro have even dropped. Easy on the scare tac­tics please. But bud­get­ing should take into account costs other than just the mortgage.

She also warned that reces­sions can be fol­lowed by long recoveries.

Com­ment: Can be fol­lowed… can be. The last reces­sion in the early 1990s took 7 quar­ters to recover – which was the longest in some time. That is not even two years. Right now, depend­ing on who you talk to, we are 6 quar­ters into recov­ery. Or even if the bot­tom was Decem­ber, 7 quar­ters takes us to Sep­tem­ber of next year. Hardly a long time. Things just are not as bad as many peo­ple think, or want you to believe.

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