With economic turmoil continuing in many parts of the world financial uncertainty and fear remain at elevated levels. Stock markets have been down over the past week and may continue to drop further as markets around the world adjust and deal with the fallout of the current crisis.

Dealing with this uncertainty and trying to decide if its a good time to make a home purchase (in this case I’m referring to my local market in the City Of Toronto) is on the minds of anyone thinking of making a move in the next three to six months.

As in any real estate market the question of is it a good time to buy depends on many personal factors which I won’t go in to right now. To find out more about these factors email me for further discussion.

What baffles me (and always has) is the amateur or wanna be fortune tellers who go out their way to spread the word to anyone who will listen that the housing market is over priced and now is not a good time to buy as the market will be dropping by 10%, 20%, 35% or so in the next year or two. These are dangerous and bold assertions for anyone to make!

And without doubt these are the same people who have either a) never even purchased a home before; b) have bought and sold one or two homes in their lifetime; or c) always reference somebody else (usually another uninformed “friend”) when challenged on their opinions. Far from a respectable source in my professional opinion.

With interest rates at amazingly low rates there are amazing deals to be had for all types of personalities and personal preferences. For example you can get an interest rate of 3.5% for 5 years and based on a 30 year amortization it would cost you about $450 per month for every $100,000 borrowed. Move that rate to 5% with the same terms and the monthly goes up to $535 per $100k.

Now lets look at what a 1.5% interest rate hike would mean on affordability. If you are looking at homes that are currently valued at $500,000 and you put 20% down you would have a mortgage of $400,000 to carry. Locking in for 5 years it would cost you $1800 per month at 3.5%. At 5% it would be $2140.

Therefore if you are banking on house prices dropping before you make a purchase today then based on the above numbers home prices would have to drop by about 15% ($75,000) from the $500,000 value to offset the difference paying at the higher rate of 5%.

How long before interest rates rise to the 5% range is unknown. But what I do believe is lending requirements most likely will tighten if we hit a rough patch in the housing market. And this will/may leave you on the outside looking in.

My advice is twofold: 1) leave the speculating and gambling to the stock market and casinos and go back to looking at your home as exactly that. A home! The only place where you can call your own shots and not be at the control of others. 2) Stop listening to people (friends, family, newspaper columnists, the guy asking for change at Jarvis and Lakeshore) about their thoughts on the housing market. Look to trusted professionals. Find a real estate agent you can trust. Find a mortgage planner you can trust. Find someone who does have positive thoughts on why it might be the right time for you to buy and then make the best decision that suits you.

Yes house prices are still on the rise. But with amazing low interest rates you can quickly pay off your mortgage at a faster rate with more principal being paid down. If you go variable right now roughly 50% of your total payment is going towards principal. Sweet!! Want a more conservative approach then lock in for a 5 year fixed term where currently it’s about 40%. For exact figures and to work out what’s the best personal strategy for you I recommend finding that trustworthy mortgage planner I mentioned above and get the facts in writing.