Buying in a seller's market

We are often asked by first-time buyers whether it makes sense to buy in a market as hot as the Okanagan has seen for a long time.

The answer is yes, assuming you’re planning to be in the market for the long haul. In any market, a plan to own for the short term, or considering a fix and flip, is a riskier one.

There are a number of factors that make the decision to buy a two thumbs up. These factors are:

  • Interest rates are still historically low. Although we have experienced a few rate hikes during the past few months, interest rates are still extremely favourable.
  • Renting is often costing more on a monthly basis. As rents creep up (maybe a little faster than creeping), even as house purchase prices increase, the math still usually works in favour of paying a mortgage versus renting.  
  • Over the long run owning real estate is always a great investment. History always seems to repeat itself. Even most of those who purchased during the last real estate boom ending in late 2008 are realizing gains if their homes are sold today. The trick is to stick it out and wait until you are in a position to sell high (or higher!).
  • Owning is an investment in your future. If you are renting, continuing to rent is helping someone else invest in theirs. 

Investing in real estate is one of the best investments you can make. If you are purchasing a home as your principal residence, it is one of the best tax-free investments you can make.

Even though prices are higher than they were a few years ago, or even last year, a long-term investment in your future is always a good one. 

Our recommendation is buy now – and don’t wait. You don’t want to be looking back in a year saying to yourself: “I wish I would have bought when the prices were lower last year!”


Buying a mobile home

Mobile homes are usually attractive to buyers for two reasons: 

  • affordability
  • the ability to obtain privacy on a limited budget.

The first item to consider in your decision making is whether you want to purchase a manufactured home on its own land. If you have an interest in land plus the building, then you have an excellent opportunity for your investment to increase in value.

If the home is on a leased piece of land (i.e. what is termed “pad rental”) the land is not included in the sale. 

You are purchasing the structure only and the right to continue to pay the landowner pad rent. Although purchasing a home without an interest in land limits your investment potential, it still allows you to create a lovely home for yourself and your family.

The second item to consider is, if the manufactured home is on a leased pad, how long and how secure is the lease?

  • Is it a private lease?
  • Is it a First Nations lease?
  • If it is a First Nations Lease, is the lease directly with the First Nations landholder or is it with the Crown?

All these considerations come into play and can make your decision making more complicated.

The third item to consider is the age of the home. 

If you need financing, older manufactured homes on pads are more difficult, if not nearly impossible, to finance with a bank. 

Because pad rental is involved and there is no interest in land, most banks will generally view the financing as a chattel loan (similar to a car loan, rather than a mortgage), which may be at a higher interest rate and shorter amortization period (i.e. period of time to pay the loan off) resulting in higher monthly payments. 

As you can see, the ultimate decision on what type of manufactured home to purchase and where is a complex one and involves many factors.

Always the most prudent decision is to discuss the pros and cons with your real estate professional and, if you are looking for financing, your mortgage broker or banker. 

All in all, owning any type of home, whether it be manufactured or otherwise, is a positive investment in your future. 

Should I buy brand new?

There really is nothing like moving into a brand new home, one that no one but you has ever lived in. 

However, There are five main factors for buyers to consider when making the decision to purchase a brand new home versus a previously owned home. 

These five factors are listed below:

GST: Previously owned homes are generally not subject to GST (with some exceptions such as working farms, some vacation homes, and homes that have been substantially renovated), whereas new homes are. In the North Okanagan, most buyers can count on paying the full five per cent GST with no rebate due to home prices being much higher than the allowable price ceiling.

Landscaping: Older homes often have more mature landscaping, although there is no guarantee that landscaping is perfect. On the other hand, most brand new homes include minimal if any landscaping with a purchase. This can be a large expense and one that you want to include in your final calculations when you purchase. 

Appliances and window coverings: Many pre-owned homes have appliances that can be negotiated into an offer to purchase. Most brand new homes do not include appliance packages or window coverings, adding two more big ticket items to the bottom line that must be accounted for in the final cost tally. 

Deficiencies: Older homes may not have brand new innards, however someone has lived in the home prior to you, and has worked out all the kinks. If you have never owned a brand new home, you may not be prepared for all the post move-in visits by the many trades people coming to fully complete or repair something. It’s a revolving door for your first few months of living in your new home. Be prepared!

Construction zone: Buying an older home in an established area on a quiet, tree-lined street is often a pleasant experience, one that you can enjoy immediately. On the other hand, most brand new homes are built in brand new subdivisions. And unless you purchase the last lot in the subdivision, your neighbourhood is going to be under construction for years. This means years of trucks and traffic and jackhammers and nail guns until the subdivision is complete. 

As you can see, purchasing a brand new home isn’t the least costly, or the hassle/stress free option.  However, as mentioned above, if you’re up for it and are prepared for a few costs and inconveniences, new homes are magical.  


Stressed by mortgage test

The only thing constant in the real estate business is change. And once again, we have a change in the mortgage rules that will affect many real-estate buyers.

As of Jan. 1, the government has implemented a stress test on conventional mortgages. There seems to be some confusion as to what this means, and as to who will be affected.

This change only affects home buyers (or people looking to re-finance) who wish to purchase/re-finance and have a 20 per cent or greater down payment. For example, someone purchasing a $500,000 home and has a $100,000 or greater down payment. 

This does not affect buyers who have less than 20 per cent of the purchase price as a down payment, as those buyers were already required to qualify for the stress test.

This means that anyone with a 20 per cent or greater down payment on a home will be required to qualify for their mortgage based on calculations on the greater of either the five-year posted rate or two per cent higher than their contract rate. 

Often, the posted rates are far more than the rate agreed upon with the financial institution.

For example, if you have a pre-approval for a three per cent mortgage rate, the regulations will now require you to have the ability to afford to pay your payments on your mortgage as though the rate on your mortgage was five per cent.

Another example: The interest payment on a mortgage of $300,000 at three per cent with a 25-year amortization would be $1,420 per month.

At a five per cent interest rate, that same mortgage would cost $1,745 per month. With these new rules, you would be paying $1,420 per month, however you would have to qualify for the mortgage as though it were $1,745 per month.  

As of Jan. 1, regardless of how little or how much you have saved as a down payment, buyers must qualify at the higher stress test rate. We strongly recommend that if you are thinking of buying in the near future, you take this into consideration.

Please note that pre-approvals in place will not protect you from this change.

If you believe these changes may affect you, local mortgage professionals are recommending to action well before Dec 1, 2017 as often lenders implement the new rules early. 

In a nutshell, there have been significant changes to the mortgage lending market every year for the past 10 years. We shall see you here again next year, similar time, same place, likely with more changes, whether we like them or not!

More Just Add Salt! articles

About the Author

Lisa Salt is a Vernon born Realtor® who, along with her husband Gord Fowler from Calgary, lead one of the most successful and dynamic real estate teams in the North Okanagan. 

An international clay target shooting champion, Lisa brought the attributes of hard work and diligent focus to the real estate industry to create the success she and her team have today. 

To experience the local knowledge and expertise that only someone born and raised in the Okanagan can offer, call Lisa today and 'Just Add Salt'.

Website link:   http://www.saltfowler.com

Contact e-mail address:  [email protected]


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories