Is it a good time to buy? Sell? Rent?

by Andy MacDonald,

Each week, mortgage broker Andy MacDonald writes 'Real Insight' for moneysense.ca , a column for about today's real estate market and helps you make smart home buying, borrowing and selling decisions.

I think the key thing to remember is that the only people who are good at timing the market are historians and gamblers. It's easy to say what you should have done when you have the benefit of hindsight, but deciding what to do in real time is fraught with uncertainties.

Buying a house is a lifestyle choice; it is not a get-rich-quick scheme. There are lots of people who will try to calculate the benefits of buying a house versus renting. They will make assumptions on your spending habits, the return on potential investments, and they will formulate predictions of which option is better. The problem is that there is no formula that will calculate the value of occupying your own home.

One issue to look at when you consider buying a house is the number of large transaction costs involved in getting in and out of the market. When you buy a house, you end up paying land transfer taxes, appraisal fees, legal fees, home inspection fees and maybe even Canada Mortgage and Housing Corp. insurance fees. These fees can easily add $10,000 to the cost of buying a house.

When you sell your house, you face an array of additional fees: legal fees, discharge fees, penalties to pay your mortgage off early, and real estate commissions. Real estate commissions alone will cost you 4% to 6% of the value of your home. At the end of the day you will easily spend $30,000 to get in and out of the market for just an average house.

House prices in Canada are not typically known for exponential growth. If you are only in the market for a few years, it is usually difficult to recoup your transaction costs. The key to owning a home is to have a long-term outlook. Try to buy a house that you can grow into over five to 10 years.

I see a lot of people who buy a small condo or townhouse and they tell me it will only be for a year or two, until they can afford something bigger, or until they are ready to settle down and raise a family. With a time horizon this short, chances are they would be better off renting until they are ready to buy for the long term.

Some will argue that you have to be "in the market" or you will never be able to afford a home. If property values are growing that quickly, chances are there is a bubble in the making. If prices grow that quickly, there will eventually be a correction. Just look back to the housing market in Toronto in the late '80s. Everyone was speculating in real estate.

People bought two or three condos at a time and were flipping them for a healthy profit before they were even built. Then the bubble burst and it took about a decade for house prices to get back to values seen during the boom. If you see a lot of short-term speculators — in any type of investment — it is usually a good sign to stay away!

Renting is not a bad option for a lot of people. Most single people who are still trying to find their niche in life or are uncertain about where they want to be in three or four years are probably better off renting until they are ready to set down roots in a community. The high costs of entering and exiting the market just don't make sense with a short-term time horizon.

I think home ownership is still what most Canadians strive for. It is the essence of family life and helps people set down roots in what has become a very transient society. Owning a house is not a get-rich-quick investment. First and foremost, it is a home; its investment potential is secondary.

As a friend recently said to me, "To own a house and pay down a mortgage is to have a security blanket."