Moshe Milevsky is one of the most respected mortgage commentators in the country. A few months ago he had words of warning for those wondering how much home they can afford in Canada’s white-hot real estate markets.
“At some point [prices] just become so detached from reality that you have to stop and tell people: ‘you are going to lose money on this deal.’ You have to think very carefully about whether this is the right thing for you.”
“I suspect that what’s driving [record home prices] is the very, very low interest rates. All you have to do is put down 5%, and you can leverage up 19- or 20-to-one. That’s driving this, and I don’t think it’s going to end well for a large group out there.”
Indeed, there are indications that consumer buying power is about to take a tumble once the Bank of Canada starts tightening.
“The start of the tightening cycle will find a highly leveraged consumer with a debt-to-income ratio approaching a record-high 150%. This is 40% above the ratio seen the last time the Bank of Canada started to hike. This means that monetary policy will be very effective in slowing the consumer.”
A “slowed-down” consumer will spend less on housing and that could put a damper on home prices overall.
This is just something to keep in mind if you’re contemplating a new home purchase—especially if it’s a bidding war situation and/or you’re putting less than 10% down.
Take it slow. Overpaying makes no sense–regardless of the market. The last thing you want is to experience negative equity and curse the day you put in your offer.