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Buy Lower/Sell Higher www.MoreForMyHouse.com Is time to buy or time to hold?

Bill Rinehart, Realtor®/Salesperson HomeLife/Kempenfelt-Kelly Realty Ltd, Broker 705.436.5111

Buy now or wait ? First, some boring statistics.

It's difficult to understand where the market has gone just by looking at the raw sales values from the past. Using Barrie city as an example above, it appears that prices in Barrie are currently $72,000 higher than when the 80's boom-market peaked in 1990. A dollar bought a lot more in 1990 than it does today though, because of inflation. Watch what happens when those 1990 sale prices are converted into 2009 dollars. (Courtesy of the Bank of Canada inflation calculator.)

City of Barrie Sales	Avg House Sale Price that year	That value in 2008 dollars
1985 - before boom	$ 67,998	$ 120,190
1990 - peak of boom	$ 171,409	$ 243,063
1995 - bottom of crash	$ 122,744	$ 158,393
2008	$ 243,411	$ 243,411

The average Barrie sale price of $171,409 during the 1990 boom market is equivalent to the buying power of $243,063 in today's dollars, but the average Barrie sale price in 2008 was $243,411. It has taken 18 years for people who bought in Barrie 1990 to be BREAK EVEN on their initial investment. Sounds like there's still room to grow right? If you read Who Made The Most? you'll remember that Barrie suffered the worst during the crash and gained the least during the recovery. The other townships give a clearer indication of where the market is now.

	Peak 1990 Sale Prices	1990 in 2008 Dollars	Avg sale Price 2008	Real returns 1990-2008
Oro-Medonte	$ 174,176	$ 246,986	$ 367,613	+ 48.8 %
Essa	$ 141,436	$ 200,559	$ 244,722	+ 22.0 %
Clearview	$ 150,969	$ 214,077	$ 261,135	+ 22.0 %
Innisfil	$ 147,557	$ 209,239	$ 248,154	+ 18.59 %
Springwater	$ 196,923	$ 279,241	$ 358,499	+ 28.4 %
Barrie city	$ 171,409	$ 243,063	$ 243,411	+ 0.1 %

So what ? I've been talking about the buyers who bought at the peak of the boom market. Watch who cleans up when you compare them to the ones who held off and bought when the market was at its lowest:

City of Barrie Avg Sale $	Purchace price conv to 2008 dollars	Real rate of return by 2008
1985 - before boom	$ 120,190	+ 102.5 %
1990 - peak of boom	$ 243,063	+0.1 %
1995 - bottom of crash	$ 158,393	+ 53.7 %
Sale price today in Barrie	$ 243,411

The people, in Barrie, who 'bought low' in the troughs of the market cycle realized either a 50% or an almost 100% return AFTER adjusting for inflation. Those who "bought high" at the top of the market have only now broken even on their investment. Buying a house at the right stage in the market cycle can turn a purchase into an investment. 'Buying high' at the peaks of the market cycle can be a bad investment decision, but it can still be the right thing for you to do if you have other priorities.

Market Timing If you've read Where is the Market Going you'll have concluded that we've just rounded the curve on one of those market peaks. January 2009 sale prices are, on average, 10% lower than they were 12 months earlier. If you buy a house today, you won't be buying at the peak, but you will be buying near it. Nobody knows what the numbers will be like at the next trough. The question for you then is, does it still make sense to buy anyway? The short answer is, it depends. There are three scenarios and three answers: A: If you currently own a house, you will be selling near the top of the market but also buying near the top of the market. It's kind of a sideways move. It makes sense to make that sideways move if the house you are currently living in does not meet your needs. If you're like most people, you will have to sell the house that you're in before you can buy another one. In a hot seller's market, you will be able to sell and make the move. If you wait until the housing market tanks completely, the asking price on the house you want will be lower but, because the market is slower, you might not be able to even sell the one you're in now. You'll be stuck in the house that doesn't suit you anymore. It still makes sense to buy and sell around the peak of a market, even though prices are inflated. B: If you're renting, the amount of money that you're paying out for rent can be a significant incentive to buy. Your monthly rental payment is all going into the landlord's pocket. If you were paying a mortgage instead, the money that you're paying out is going into you own pocket, and to the bank as interest. The potential drop in the value of your home could be offset by the consolation that, even though you've lost money on the house, you've lost less than if you were still paying your landlord's mortgage instead of your own. The caveat is, your downpayment has to be large enough that, if the value of the house falls, your mortgage will not be higher than 95% of the market value of your house. If you don't have a large enough downpayment, you could get a call from the bank asking you to come up with more cash to bring your existing mortgage down to less than 95% of the value of the house. The "experts" did a rent-versus-buy analysis using a computer model and they concluded that, in investment terms, a renter would come out ahead of a homeowner over the long term. Their assumption was that the renter would invest the difference between the monthly rent and the higher monthly mortgage payment, plus the money NOT spent on taxes, repairs and maintenance, in an investment vehicle that provided a better long-term return than historical residential real-estate value appreciations. The amount of the monthly mortgage payment that is being applied to the principal is smaller that you would think. If you buy with 5% down, let's say on a $300,000 house, by the time it's paid off, you will have laid out $600,000 dollars including interest. The interest that the owner is paying, and the rent that the tenant is paying, are comparable as an "occupany cost." They level the playing field. How each handles the ownership expenses separates the winners from the losers. Compared to the owner's negative savings, the tenants, with compound interest on the saved expenditures, would have enough money at retirement to pay cash for a house and still be left with more money than the long-term owner after they paid off their mortgage. Real people are less disciplined than a computer model though. The problem for renters is that when they have the money in their mittens, they spend it on the candy of life. In reality, a mortgage acts like an enforced savings plan. If you're an average undisciplined human, you'll be better off in the end if you're a homeowner rather than a renter. If you are buying with the intention of holding onto the property for at least five years, you will likely ride out the downturn in the market. By the time you're ready to sell, you'll be selling at the next peak and will not sustain any losses. The value of your house is only an issue for you when it's time to sell it, or to your lender when they're looking at how much you owe and what you're assets are worth. C: If you don't own, and if you're not paying a high monthly rent, or you're living in your parents basement and paying $300 a month for rent, it makes more sense to stay there and be a power-saver. Figure out what you would be paying as a mortgage payment, subtract your rent from it, and have your bank take the difference out of your paycheque and invest it in a short term investment. You'll find out if you can really afford to live with that kind of mortgage payment, but you'll also be socking away money to use as a downpayment. When prices come down and people are getting desperate to sell, which could be soon, you'll be able to swoop in and buy one of those distressed properties that the guys on the TV infommercials talk about. A good Realtor will help you make the determination of how affordable your new home will be for you today and in the future. It's an essential part of the service that I provide to buyers like you when you get on the Fast-Track. Call me now. We can talk about your current situation, your goals, and which is the best move for you to make right now. See Where Is The Market Going? for more insights.

Where should I buy a house?	When should I buy?
Where is the market going?	Who made the most?
How do I buy lower?	How do I sell higher?

Bill Rinehart

705 436-5111

Toll Free 1-877-436-5111