When Jillian Lee moved to North Vancouver from Burnaby a few years ago, she rented a basement suite to see if she would like the area well enough to make it her permanent home. She was won over by the area, with its towering cedar trees, mountain trails, and nearby schools and amenities. The Vancouver teacher recently bought a two-bedroom prebuild condo to share with her daughter.
“This place popped up at the right time,” Lee tells the Georgia Straight. “I couldn’t afford a single-family home, and still can’t.…I came across a townhouse I really liked, but it was out of my price range too. I didn’t want to pay huge rent, nor did I want to worry about things breaking down on me. I was looking at getting something fairly new for easy maintenance and upkeep.
“I thought about continuing to rent for a while,” she notes. “The people upstairs [her landlords] are great, but for me a couple key things were consistency and stability. I wanted to stay in the area for my daughter’s schooling and didn’t want the possibility of being asked to move or the possibility of having to move several times if I continued to rent.…Investing made sense for the long term and for our future. I can always sell if need be.”
Lee says it’s a “bonus” that interest rates are so low right now. Those rates are making it somewhat easier for people living in Canada’s most expensive city to have a place to call their own. With the era of historically low interest rates lasting far longer than most people predicted, it’s hard to believe that Canadian homeowners once paid rates as high as 20 percent at their peak in 1981.
Although some people figure that now is a prime time to enter the real-estate market, others aren’t so certain. Candice Mathieson figures the bubble has got to burst—with prices dropping accordingly—so she’s waiting things out. The Vancouver health professional is currently renting in Yaletown, having moved there about a year ago from White Rock.
“I’m checking out different neighbourhoods to see where I want to live,” Mathieson says by phone. “I think that once interest rates go back up, prices will start to come down.”
Here’s an idea of how monthly costs compare when considering renting versus buying. A home selling for $300,000 with a five-percent down payment of $15,000 on a five-year term over a 25-year amortization with a rate of 2.79 percent has a monthly mortgage payment of about $1,360. The average rent for a one-bedroom apartment in Greater Vancouver, meanwhile, is $1,038, according to the Canada Mortgage and Housing Corporation’s Fall 2014 Rental Market Report.
Interest rates are likely to start rising eventually, albeit gradually. That’s why financial experts say potential homeowners need to be careful when considering signing on a mortgage’s dotted line.
“We have to assume that at some point interest rates will go up, and you don’t want to be caught overstretched, trying to make that monthly payment,” says Ian Black, a fee-only financial adviser at Macdonald, Shymko & Company Ltd. “You have to think about not just what you can afford to buy today but what you can afford if and when interest rates move.”
Mortgage broker Karen Gibbard, president of Gibbard Group Financial, says all buyers—whether they’re first-timers or not—need to consider all the variables and “stress-test” their mortgage.
“Working out a scenario of what the family finances would look like with higher interest rates is a valuable exercise,” Gibbard tells the Straight, noting that lending rules from 2010 have already implemented a similar stress test. Those who want to take a variable-rate mortgage or a fixed mortgage with a term that’s less than five years are required to qualify with an artificially higher interest rate, currently 4.79 percent.
“The most basic item, I think, a first-time buyer should consider is their budget—not what the bank says they can qualify for but what they themselves feel comfortable paying. Don’t forget there are maintenance fees and property taxes along with the other costs of homeownership, so it’s not just the mortgage payment itself.”
Rather than try to time the market, Black suggests that people wanting to get in do so when it makes sense for their own individual circumstances. Some people opt to put off the biggest purchase of their lives so they can save for a bigger down payment; others are taking advantage of low rates and making accelerated or lump-sum payments to pay off their mortgage faster.
“Everyone’s different,” Black says. “It’s not like we would say, ‘Wait until next year to buy’ or ‘You should be selling now.’ No one knows what the news is going to be next week.”