Yesterday was Better Than Today, but Today is Better than Tomorrow
Imagine it’s 2003 and you’ve just bought your first home in Toronto. You’ve likely put down a good chunk of your savings to get it and you’re probably eating noodles for weeks, but hey, you’re in! You’ve got a roof over your head and your foot finally in the door of the real estate market.
Fast forward 15 years to today. That first property you bought is now worth exorbitantly more. In fact, the average home price in 2003 was $318,029 compared to 2017’s average price of $822,681. That’s 158% market growth in 15 years. By buying that first home when you did, you have likely amassed a ton of equity and created exceptional wealth for yourself.
The remarkable growth rate that the Toronto real estate market has seen over the years—in particular these past few years—has greatly benefitted those that have already purchased property. While these individuals continue to build wealth as the market grows, those still looking to buy are having an increasingly difficult time getting into the market to begin with.
Prices are at an all time high in Toronto, so making that first purchase can be daunting. You need to be well funded and with the new lending rules in affect this month, qualifying for a mortgage just got harder. The thing is, if you keep waiting to time the market, the more you lose by waiting.
The Longer You Wait, The Less Your Actual Money is Worth in the Toronto Real Estate Market
With real estate, the most important factor is time. The longer you wait to buy, the less your actual money is worth, and the more of it you need. This is especially true in today’s hot Toronto market where condo prices (the most affordable option for first-time buyers entering the market) are climbing in the double-digit percentages on a year-over-year basis. Average home prices were up 12.7% last year. So, that being said, the best day to buy is always yesterday. If you’re waiting for the market to drop, it’s very likely that prices will still be higher than they were six months ago.
For instance, while you’re waiting for the market to drop, one full year passes, and let’s say by chance it does waiver and drops 3% over a month or two. Over that year the market went up 13% (last year it was up 12.7%), even though the market wavered and you purchased in that down period, the market was still up 10% over the previous year. If you have $100K to put down on a property but decide to wait in hopes that the market will drop and your dollar will go further — but instead, the market goes up 10%. Now, your $100K is only worth $90K.
Although it is possible to wait out for a negative year-over-year month (where this months average price is lower than that of the same month last year) keep in mind that this has only happened once in the last three years. In November of last year, the average price was down 2% year-over-year but condos specifically (what a first-time buyer would likely purchase) were still up 16.4%, but if you had waited 2 years for that negative 2%, you might think you’re getting a deal, but really you’ll just be paying more.
The sooner you can get into the market, the better. As Toronto home prices increase, your approach to getting into the market needs to change based on your financial situation. Buy a small property that’s within your means that will start to build your equity, rather than holding out for your perfect dream home. It’s important to be realistic about what you can afford on your first purchase, but the sooner you do, the sooner your equity will build and the closer you get to buying that dream home.
Working with an experienced Realtor is invaluable in getting your money to start working for you. They’ll be able to give you guidance on how to maximize your return and equity beyond the expected market growth. Like I said before: with real estate, the most important factor is time. The longer you hold that initial investment, the more you’ll earn from it and be able to leverage it into additional properties, building you a promising real estate portfolio. You can read more on our leveraging strategy here.
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