Ottawa Housing Market – Is Borrowing Large Amounts of Money to Get into the Housing Market a Bad Idea?

Ottawa Housing Market – Is Borrowing Large Amounts of Money to Get into the Housing Market a Bad Idea?

The housing market in Ottawa is expected to grow, mainly due to a population influx and rise in demand. Home sales in the city have grown by more than 11 percent in February, 2017. The number of sales has grown for both, condo and residential properties. With an average price of about $300,000 – $400,000, buyers also benefit from the fact that there is more choice. Listings have increased by more than 2,000.

Ottawa’s Housing Market: Outlook

The housing market showed signs of vigorous activity in the beginning of 2017, with over 1,000 properties being sold in February alone. This is a positive trend given that about 870 properties changed hands in February, 2016. This trend can be explained by the construction of the right rail transit and the large number of DND workers in the west-end districts.

Does Borrowing Large Amounts Make Sense?

While purchasing a home is a preferred solution for many and conventional wisdom says to do so, there are some factors to consider. This is especially true when you have to borrow a large amount of money. The first factor is home prices, and the second – mortgage interest rates. When mortgage interest rates are low, it makes sense to borrow and save on interest ( A drop in home prices also allows buyers to save money. Other factors include your job and long-term employment perspective, where you live, and the amount you saved to make a down payment. Borrowing a large amount of money (above $500,000) means that you need to save 10 percent for the down payment. The 5-percent rule now holds for properties below $500,000. If you can save some 20 percent to pay down, that’s even better. Consider the closing costs as well as other costs like home inspection fees, appraisal and lawyer fees, land transfer taxes, and real estate agent costs.

Further Considerations

When it comes to housing prices in Canada, there is a negligible increase of about 0.5 compared to January, 2017. This means that prices are relatively stable which is good news for the housing market in the long run. While it makes sense to buy a property when prices are stable, there are some challenges that home buyers face. The financing costs are expected to increase because of regulatory changes. Moreover, Canadians find it more difficult to qualify for financing because of the new mortgages regulations that came into force.

Higher mortgage rates since the election of Donald Trump mean that the cost of borrowing has increased substantially. In fact, some experts note an increase of close to 30 percentage points. Even with relatively stable housing prices, affordability decreases at a much faster pace compared to income growth. This means that borrowing large amounts of money, especially if your income is low, can have serious consequences ( If you are in the high-income bracket, have a stable job or business, have solid credit, and find a reasonably priced property, than you may consider borrowing a larger amount of money. Other factors to take into account include family size, combined income, your partner’s job prospects, how much you already owe, types of debt, whether you have high interest credit cards ( and loans, and so on.

Finally, keep in mind that when housing affordability decreases, this is also true for renters. This means that you will pay more for the same property than you used to.