Home buyer prep for 2010

Many people who were prescient enough to buy a house in Toronto at this time last year are likely spending the opening days of 2010 exulting and revelling in cheap money.

Meanwhile, if you spent last year scratching up a down payment with the hope of buying a house or condo in the coming year, here are a few things you need to know:

1. Brace for higher interest rates

Expect more heroism from home buyers in the first half of the year, says deputy chief economist Douglas Porter of BMO Nesbitt Burns, who named the Canadian home buyer “person of the year” in 2009. Mr. Porter says purchasers “bravely looked beyond the valley of the recession and helped lead the domestic recovery,” and he expects another burst of activity in the first two quarters. The Bank of Canada has signalled that it will keep its key lending rate at its current level until the end of the second quarter.

As a result, Mr. Porter predicts prospective home buyers will rush to beat the possible tightening of interest rates that may begin in July.

2. Anticipate an HST flurry

At the same time, the Government of Ontario is preparing to introduce a harmonized sales tax that will take effect in July, 2010. While the tax will hit hardest those who buy newly constructed houses, it will also add to the costs of buying an existing home.

He expects buyers will hustle to complete a deal before the tax is implemented.

“Where people can save a few dollars, they will try to,” says Mr. Porter, who points to the same kind of run-up before the introduction of the land-transfer tax in Toronto.

3. Choose whether to sell first or buy

Many people who sold their existing house or condominium unit in the effervescent finale to fall 2009 are now frantically searching for their next home. Real-estate agent Geon van der Wyst of Royal LePage Real Estate Services Ltd. has clients who sold recently and still haven't found a new place to land before the closing date in January or February.

Mr. van der Wyst often advises homeowners to buy first if they will be selling the kind of property that moves quickly – such as a house in a coveted location or a family-friendly home that “shows” well.

As for those who are currently scrambling, Mr. van der Wyst does his best to soothe their anxiety. He reminds people that they can always rent for a while or bunk with relatives. “Please be patient,” he tells them. “I'm looking at the hot sheets every day, all day.”

Besides, it could be much worse. In late 2008 and early 2009, some purchasers suffered the misfortune of buying a new house only to face a market collapse when they tried to sell their old house.

But properties that appeal to a niche market will take longer to sell.

In the case of a client who wanted to bring a spacious and luxurious loft to market, Mr. van der Wyst recommended she sell first because he knew only a small slice of buyers could afford the premium price and maintenance fees.

4. Look for a robust crop

of new listings in the spring

Mr. Porter expects a stronger-than-usual spring rebound in the number of houses and condos listed for sale.

The signals were already there as the fall market wound down, he points out, as sellers were enticed to bring their houses and condos to market by tales of bidding frenzies.

Across Canada, new listings in November swelled by 5 per cent compared with October to mark the largest one-month gain in two years, the Canadian Real Estate Association says.

That improvement will likely continue when the city thaws, says the economist, who adds that the increased listings will bring balance to the Toronto market.

“That may be what keeps us from gliding into full bubble territory.”

5. Use timing to your

advantage

The real-estate market in 2010 will likely be a tale of two halves, says Mr. Porter. The first half will vibrate with activity while the latter half will settle down.

So, on balance, will buyers be wise to join the stampede trying to get in ahead of increased taxes and interest rates, or wait and take the risk of paying those higher costs?

Usually a good time to buy is late in the year, when there aren't as many buyers, and sellers may be feeling a little bit more desperate, says the economist.

“I'm not sure you want to be in a rush to go out and buy in the spring.”

6. Focus your search

Mr. van der Wyst urges his new clients to select a target Toronto neighbourhood before they set out for the first showing. But once he knows which community appeals, he can lead them on an “education tour” to look at some alternatives. Sometimes he'll spend half a day driving clients past streetscapes, schools, public- transit systems, libraries, coffee shops and stores.

7. Learn the term

“Debt-to-Income Ratio”

The debt-to-income ratio is defined as the percentage of a consumer's monthly gross income that goes toward repaying debt. This is one of the tools that lenders use to determine your ability to repay a mortgage. You can find an online calculator on the web sites of mortgage brokers and credit counselling services. Generally, people run into trouble when that percentage gets too high. Bankers get nervous when the number rises above 40 per cent, but lots of financial pros recommend that home buyers adopt a more conservative stance and stay comfortably below that mark.

Bank of Canada Governor Mark Carney last month cautioned Canadians against taking on too much debt and federal finance minister Jim Flaherty chimed in with his warning that he will bring in firmer regulations to rein in borrowers if the housing market becomes too overheated

(prepared by Carolyn Ireland/Globe and Mail)