Should you buy a house before it's too late

salesmanYou better buy a house in this market before it's too late.


How many times have you heard those words? The panic thinking is driven partially by prices continuing to rise to record levels but also by the sense that near-record-low interest rates could rise at any moment.


The sense of desperation to buy now out of fear you won't be able to get it tomorrow is probably one of the first things taught to any sales person. Create a sense of urgency.


"There's six left on the shelf, nope, it's down to five," jokes certified financial planner Ted Rechtshaffen, president of TriDelta Financial. "It's an interesting phrase."


Mr. Rechtshaffen says his clients are not uttering panic words but you have to wonder whether Mark Carney, governor of the Bank of Canada, might have been hearing them before making a speech to the Vancouver Chamber of Commerce this month.


"One cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand," Mr. Carney said. "The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear -greed among speculators and investors -and fear among households that getting a foot on the property ladder is a now-or-never proposition."


It's hard to measure desperation, but a recent survey from Toronto-Dominion Bank on first-time homebuyers might imply there is some urgency in the marketplace.


The survey found 45% of Canadians are willing to buy their home independently without a co-signer. Traditionally people wait until they are married to buy that first home but now they want to establish equity early so they can get their foot in the market.


More worrisome out of the TD report was the statistic that buyers are doing less research before jumping in. The bank said mortgage pre-approvals are down to 72% from 84% a year ago and home inspections have dropped from 85% to 67% during the same period. The report also shows declining percentages for buyers researching issues like electricity and closing costs.


It all sounds like somebody in a hurry to buy or at least in a bit more of a rush.


"I think people see affordability is still there. The employment numbers are strong and rates are relatively still low," says Farhaneh Haque, regional manager of mobile mortgage specialists with TD Canada Trust. "In part there is a sense or urgency because they are worried about rates and unsure of what the markets will do."


Benjamin Tal, deputy chief economist at CIBC World Markets, says the Bank of Canada is partly to blame for some of the urgency in the market because of the uncertainty over rates.


"People feel the window is closing," Mr. Tal says. "People have been talking about the Bank of Canada raising rates. They look and say rates will be one or 1.5% [percentages points higher] next year. There is some logic to it."


He adds that if you look at trends over the past 20 years on what happens before rate announcements, you see an acceleration of activity before the announcement.


"Look at the last year and half and we've had this sense of urgency," says Mr. Tal, adding it has driven housing in Canada since the recession. "The real estate market has like nine lives."


It's easy to say wait until the market crashes in cities like Vancouver, where prices are up 25% from a year ago. But if rates go up, it could be just as expensive to carry a home.


Queen's University professor John Andrew says it's in the real estate industry's interests to promote the idea prices will rise forever. But while he thinks it's obvious in places like Vancouver there will be a price correction, it doesn't help you if interest rates go up.


"You see a 10% price correction but if interest rates go up two [percentage points], you are not better off," Prof. Andrew says. "Buyers are caught in this quandary that when interest rates go up, prices will come down."


If you are sitting on the housing sidelines, it might seem like you can't win either way.


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