By Ann Perry, Toronto Star

To buy or not to buy?

That is the question facing potential first-time homebuyers who are weighing the benefits and risks of jumping into the housing market in the midst of the recession.

Until recently, many first-time buyers were priced out of real estate markets in major Canadian cities by frenzied bidding wars that sent prices into the stratosphere.

But the global recession has brought many housing markets back closer to earth and, in the process, presented opportunities for first-time home buyers. House prices have fallen in many cities. So have mortgage rates. That means that buying a house has become more affordable. But buying and borrowing costs aren’t the only factors potential homebuyers have to consider.

The recession has sent spasms of fear rippling through the job market. Canadian employers have shed 357,000 net jobs since October, pushing the unemployment rate to 8%, a seven-year high. Economists are warning the jobless rate will likely continue to rise, with some forecasting 10 per cent unemployment by next year.

Comment: Except that we saw 36,000 new jobs created in Ontario in April. But of course, that is just a blip, a mistake, the world is still going to end. Why is that commentators, pundits, talking heads and the press will give acres of coverage to bad news, but when there is a bit of bright light, it is buried under the obituaries on the back page? Isn’t good news good?

That has left potential homebuyers in a dilemma. Can they afford to pass up a chance to get into the housing market? At the same time, can they afford to make the biggest purchase of their lives when few jobs seem secure?

Comment: When have jobs ever been secure?

The best way for first-time buyers to assess whether they can comfortably afford to buy in the price range they are considering is to apply for a pre-approved mortgage, said Karen Leggett, head of home equity financing at the Royal Bank of Canada. That process involves taking a close look at your down payment, household income, debts and liabilities, estimated monthly housing costs and spending patterns.

In this uncertain employment environment, potential homebuyers also should make sure they have built up an emergency fund to cover their mortgage costs if they lose their jobs, Leggett added.

“I think if you’ve covered off those bases, then you should be able to relatively comfortably and confidently be able to proceed with your purchase.” Leggett said.

Leggett said that she has been hearing anecdotally that “a lot of first-time buyers are using this as an opportunity to get into the market.” But she acknowledged that growing job insecurity is keeping some potential buyers on the sidelines.

“At the end of the day, if you don’t really have employment certainty, whether it’s the best buyers’ market there ever has been, that probably doesn’t change your decision.”

“But if you do have some employment certainty, you have a reasonably good credit profile and you have your emergency fund, and you’re sort of secured for a normal course of events and even somewhat a downturn in events, then reasonably you have to continue to live your life and move forward,” said Leggett said. “It is a good time to buy if you can create some certainty around those parameters.”

Leslie Fallaise, an outside mortgage agent with Northwood Mortgage Ltd., said first-time homebuyers are feeling “stressed and pressured” by conflicting messages.

On one hand, “they’re hearing great low interest rates – this is the time to do it, you’re never going to see this again,” she said. But some are also wondering if the housing market has really bottomed out yet.

Comment: The Toronto market bottomed in December. Sales volume was down 45% in November, 55% in Decemeber, 45% in January, 20% in February, 10% in March and around 7% in April. Follow the numbers, we went down and then headed back up. I cannot for the life of me see sales volume dropping 50% from where we are now, which is what would have to happen for the bottom to still be ahead of us.

Stock markets are up in North America, our dollar is up, job loss has slowed (or even ended with new jobs being created in Ontario last month for the first time since last year), real estate sales and prices are rising. The weather is good, people are feeling better. Unless this is all some big illusion, mistake, blip… then how is bottom still ahead of us?

By the same token, many mortgage lenders are apprehensive and are tending to err on the side of caution., Fallaise said.

“I do know that there are no slam-dunk deals right now for first-time homebuyers,” she said.

Comment: Except that is you have a decent job, a down payment and go after a house that is properly priced – then you will have no problem. I have not had a financing issue yet this year, in quite a few deals. Anyone who is on the line, who is questionable, then they may have an issue as has been the case before. Nothing new here.

Janet Freedman, a financial planner with Toronto-based Finance Matters, cautioned that first-time buyers shouldn’t be overly worried about missing a buying opportunity.

“I think they should be far more concerned in making sure they’ve got all their ducks in a row before they start looking for real estate,” she said.

The most important consideration is how secure your job is.

Comment: And how does anyone know that? Before I got into real estate, I worked for years in the internet industry. Through the dot com boom, when we were all paper millionaires, did any of us think our jobs were secure? A handful of stock options one day and a company out of business the next. This is not the 1960s, there are no more jobs for life. Not having job security is nothing new, no matter how much people try to portray it that way.

“That is something that people really need to look at very carefully,” Freedman said.

Like Leggett, Freedman counsels people to have money in the bank to cover mortgage payments in the event of job loss.

Freedman also advises people to have a minimum 20% down payment, and to take advantage of the federal government’s Home Buyers’ Plan. The plan allows first-time home buyers to withdraw up to $25,000 tax-free from their registered retirement savings plan to purchase a home. Any withdrawal must be repaid within a 15-year period, starting the second year following the year in which a withdrawal was made.

Comment: With the average house price in Toronto around $365,000 these days, I am sure there are a lot of first time buyers who have $73,000 laying around to use as a down payment. Even with $25,000 from an RRSP, that means almost $50,000 in cash. Plus closing costs. A nice thought, but nothing close to reality.

First-time buyers also need to be very careful not to get carried away.

“Even if the bank tells them that they’ll lend them a certain amount, they need to look at what their actual costs are going to be – the mortgage costs, the property taxes, which we all know are going up by leaps and bounds, utilities, and repairs and insurance, and all those things, and really work out whether they can afford it in their budget,” Freedman said.

Comment: Property taxes went up 4%, hardly leaps and bounds. Gas and hydro have even dropped. Easy on the scare tactics please. But budgeting should take into account costs other than just the mortgage.

She also warned that recessions can be followed by long recoveries.

Comment: Can be followed… can be. The last recession in the early 1990s took 7 quarters to recover – which was the longest in some time. That is not even two years. Right now, depending on who you talk to, we are 6 quarters into recovery. Or even if the bottom was December, 7 quarters takes us to September of next year. Hardly a long time. Things just are not as bad as many people think, or want you to believe.

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Contact Laurin Jeffrey for more information  –  416-388-1960

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