Why You Shouldn't Buy a Home in 2024 In Canada

Nolan Matthias - Canadian Real Estate & Finance

14 Sept 202407:41

Summary

TLDRThe video discusses the volatility of the Canadian real estate market in 2024, highlighting fluctuating sales, rising listings, and varying market conditions across different cities. It advises potential buyers to avoid purchasing homes if they plan short-term ownership, are motivated by fear of missing out (FOMO), or are expecting interest rates to drop. The video stresses that personal circumstances, not market trends, should drive the decision to buy a home. Buyers are also warned against bidding wars and purchasing beyond their means. In essence, buy only if it fits your long-term goals and financial situation.

Takeaways

🏠 The Canadian real estate market is volatile, with varying performances across cities and property types.
📉 It's not a good idea to buy a home if you plan to sell within 2-3 years due to potential market fluctuations and high selling costs.
🤔 Avoid buying a home just because of fear of missing out (FOMO). Buy only when it’s the right time for you, not due to market hype.
💸 Don't buy a home expecting interest rates to drop, as they might not go as low as expected, potentially resulting in higher costs and declining property values.
⚠️ Be cautious of buying during a time of bidding wars, as this can lead to overpaying for a property and financial strain if the market cools.
🛑 Never make an offer without financing or inspection conditions unless you are financially secure to handle potential risks, like being denied financing.
💰 Avoid buying a home you can’t afford, especially if you're not prepared for future rate hikes, job loss, or unexpected expenses.
🧳 Only buy a home if it aligns with your personal circumstances, such as starting a family, relocating for a job, or needing long-term stability.
📈 Don’t try to time the market or base your decision on external factors like market trends; focus on your own financial readiness.
💡 Ensure you have extra savings (6-12 months’ worth) before purchasing to cover unexpected costs or life changes, such as job loss or rising rates.

Q & A

Why is the Canadian real estate market described as volatile in the script?
-The Canadian real estate market is described as volatile because sales are plummeting, listings are increasing, and market performance varies greatly depending on the city. Some cities are seeing declines while others are doing well, and different sectors, such as condos and single-family homes, are performing differently.
What is the main factor that determines whether someone should buy a home in 2024?
-The main factor that determines whether someone should buy a home in 2024 is not the market conditions but their personal circumstances. Buyers should only consider purchasing if it aligns with their long-term plans, finances, and lifestyle needs.
Why is buying a home for short-term purposes discouraged?
-Buying a home for short-term purposes is discouraged because short-term market fluctuations can make it difficult to sell a property without financial loss. High real estate commissions, mortgage penalties, and potential property depreciation could eat into any gains, making it a poor decision for short-term buyers.
What risks are associated with buying a home due to fear of missing out (FOMO)?
-Buying a home due to FOMO can lead to financial loss, as people may purchase homes they cannot afford, especially during a market peak. If the market corrects, as it did in 2021, they could end up with a home worth less than they paid, making it difficult to sell without losses.
Is it wise to buy a home with the expectation that interest rates will drop?
-No, it is not wise to buy a home expecting interest rates to drop. There is no guarantee that rates will decrease, and if they don’t, homeowners could face higher-than-expected mortgage payments while property values may stagnate or drop.
Why should buyers avoid entering bidding wars when purchasing a home?
-Buyers should avoid bidding wars because they often indicate that the market is overheating. In such situations, buyers may overpay for a property, and if the market cools down, they could face a significant drop in property value, as seen in 2021 and 2022 when some markets corrected by up to 20%.
What is the danger of making offers without financing or inspection conditions?
-Making offers without financing or inspection conditions is risky because if the buyer cannot secure financing or discovers issues with the home after purchase, they could lose their deposit or even face legal action. This approach should only be taken by those who can pay in cash or handle unforeseen issues.
What financial precautions should be taken when buying a home?
-Buyers should ensure they have 6 to 12 months of savings in addition to their down payment to cover unexpected costs such as rising interest rates, job loss, or home repairs. This financial buffer helps prevent the risk of being unable to afford the property in the long term.
Who should consider buying a home despite the volatile market conditions?
-People whose personal circumstances warrant a long-term commitment, such as a growing family, a new job requiring relocation, or a stable financial situation, should consider buying a home. These individuals should not focus on market timing but rather on their specific needs and stability.
What is the overall message regarding external factors and buying a home?
-The overall message is that external factors like market trends, interest rates, and bidding wars should not dictate a home purchase. Instead, the decision should be based on personal and family circumstances, ensuring the purchase aligns with the buyer's long-term goals and financial stability.

Outlines

00:00

📉 The Volatility of the Canadian Real Estate Market in 2024

The Canadian real estate market is more volatile than ever, with varying performance across different cities. Some areas are seeing drops in sales, others are experiencing growth in specific sectors, such as single-family homes versus condos. The key question buyers face is whether now is the right time to purchase a home, and the answer is less dependent on the market and more on individual circumstances. The speaker emphasizes the importance of personal financial health and situation over market conditions when considering buying a property.

05:02

📕 Free Resource for Navigating Canadian Mortgages

The speaker offers a free book called 'Mortgage Secrets' aimed at helping Canadian homebuyers get the best mortgage rates, whether through a bank or broker. The book covers critical information for securing favorable terms and is available for free with shipping and handling fees. Viewers are encouraged to subscribe and engage with the channel for regular updates on real estate and financial advice.

🚫 Why Short-term Buyers Should Avoid Purchasing a Home in 2024

The first reason not to buy a home in 2024 is if the purchase is intended to be short-term. Short-term market fluctuations, mortgage penalties, and real estate commissions can significantly erode equity, making it unwise for buyers who plan to sell within 2-3 years. The speaker advises against buying unless the property will be owned for at least 5-10 years, or unless it can be kept as an investment even after moving.

😱 Avoid FOMO When Buying a Home

The fear of missing out (FOMO) has led many to make poor decisions in the housing market. The speaker warns against buying simply because others are doing so or because the market appears to be rising. Those who bought during market peaks often face financial losses when prices correct. The key message is to avoid letting market trends dictate your decision and to buy only when it aligns with your personal financial readiness.

📉 Don’t Count on Interest Rates Dropping

Another reason to avoid buying a home in 2024 is if the decision is based on the assumption that interest rates will drop. While rates may fall, there is no guarantee they will return to the low levels seen in the past. Buyers who bet on decreasing rates may end up paying more than expected, both in terms of higher mortgage payments and a potential decline in property values if rates remain higher than anticipated.

⚠️ Bidding Wars: A Sign to Stay Away

The speaker cautions against buying during bidding wars, which often indicate an overheated market. Properties with multiple offers can lead to overpaying, especially if the market corrects later. The experience of buyers in 2021 serves as a warning, as many saw property values fall in 2022-2023. Entering the market during such a frenzy can be risky, especially if buyers feel pressured to waive essential conditions like financing or inspections.

🔒 Risks of Waiving Financing and Home Inspection Conditions

The speaker strongly advises against waiving financing and home inspection conditions unless a buyer is prepared to purchase the property in cash. Skipping these steps can lead to severe financial consequences, including losing deposits or facing legal issues if the buyer is unable to secure financing. Only those with absolute financial certainty should consider making an offer without these protections in place.

💸 Don’t Overextend Your Finances When Buying a Home

One of the most critical warnings is to avoid buying a home that stretches your budget too thin. Buyers should account for potential interest rate hikes, job loss, or unexpected expenses. Having 6-12 months of savings is essential to weather financial uncertainties. Hidden costs often arise when owning a home, so ensuring a financial cushion is crucial for long-term stability.

🏡 Who Should Buy a Home in 2024?

Despite the cautionary advice, the speaker outlines who should buy a home in 2024. Those in stable life circumstances, such as growing families, new job locations, or long-term plans, may find it a good time to purchase. Buyers who are tired of renting, have saved for a down payment, and have extra savings should also consider buying, but only if it aligns with their personal needs, not external market factors.

📺 Learn More About the Current Canadian Real Estate Market

To stay updated on the latest in the Canadian real estate market, viewers are encouraged to watch a related video that dives deeper into current trends and conditions. This video offers further insights into what’s happening in the market right now and provides additional context for those considering entering the market.

Mindmap

Keywords

💡Volatility

Volatility refers to the unpredictable and rapid changes in the market. In the context of the Canadian real estate market, it highlights how sales, prices, and listings fluctuate drastically, making it challenging for buyers and sellers. The video emphasizes this as a reason why potential buyers should consider their personal circumstances over market trends.

💡Short-term purchase

A short-term purchase refers to buying a home with the intent to sell it within a few years. The video advises against making short-term purchases due to market fluctuations, which can result in financial losses through penalties, fees, and decreasing home values. This is especially risky when market conditions are uncertain.

💡Fear of Missing Out (FOMO)

FOMO is the fear of missing out on opportunities, causing people to make impulsive decisions. In the real estate context, many buyers have purchased homes out of fear that prices will rise and they won't be able to afford a home later. The video warns against making purchases driven by FOMO, as it can lead to financial loss if the market declines.

💡Interest rates

Interest rates are the cost of borrowing money, and they greatly impact mortgage payments. The video discusses how some buyers expect rates to drop and thus rush to buy homes. However, it warns that interest rates may not decrease significantly, and counting on lower rates can lead to higher costs if the market doesn’t behave as anticipated.

💡Bidding wars

Bidding wars occur when multiple buyers compete to purchase a property, often driving up the price. The video advises against participating in bidding wars as they can inflate the price of homes, leading to potential overpayment. This is especially risky during a market where prices are already volatile.

💡Mortgage penalties

Mortgage penalties are fees that a homeowner must pay if they break their mortgage agreement early, often due to selling a home before the mortgage term ends. In the video, this is presented as a risk of short-term purchases, as selling a home quickly could result in significant financial loss due to these penalties.

💡Real estate commissions

Real estate commissions are fees paid to agents when a home is sold, typically around 5-6% of the home's selling price. The video highlights this as another cost that can eat into a seller's equity, especially if a property is bought and sold in a short period of time during a volatile market.

💡Condition-free offers

Condition-free offers are offers made to buy a property without standard conditions like financing approval or a home inspection. The video warns against making such offers unless the buyer is certain they can afford the home without financing, as skipping these conditions can lead to severe financial and legal consequences.

💡Savings buffer

A savings buffer refers to having extra savings set aside to cover unexpected expenses. The video stresses the importance of maintaining 6-12 months of savings when buying a home to cover unforeseen costs, such as rising interest rates, job loss, or home repairs. This helps protect homeowners from financial strain.

💡Personal circumstances

Personal circumstances include factors like family size, job location, and financial stability. The video stresses that these should be the primary drivers of a home purchase decision, not external market conditions. For example, a growing family or relocating for a new job are valid reasons to buy a home, while market trends should not dictate the decision.

Highlights

The Canadian real estate market is highly volatile, with varying performance across cities and market segments.

Real estate decisions should depend more on personal circumstances rather than market trends.

If you plan to move within 2-3 years, it’s not advisable to buy a home due to market fluctuations and high transaction costs.

Buying a property with the expectation of short-term gains can result in significant losses due to market shifts.

FOMO (Fear of Missing Out) is a dangerous reason to buy a home. Buying during a market peak can lead to financial losses.

Don't buy a home expecting interest rates to drop soon. There's no guarantee that rates will decrease to the levels people hope for.

Avoid participating in bidding wars, as this can lead to overpaying, especially in overheated markets.

Never buy a home without financing or inspection conditions unless you can buy the property outright in cash.

Ensure you have at least 6 to 12 months of savings in case of unexpected financial changes, such as job loss or rising interest rates.

People in life situations, like growing families or long-term relocation, should consider buying if they plan to stay for 5-10 years.

Don't try to time the market or interest rates. Purchase a home only if it's the right time for your personal circumstances.

Buying should only be considered when it doesn't cost significantly more than renting, based on your financial stability.

Hidden costs of homeownership, such as maintenance and unexpected repairs, often catch first-time buyers off guard.

Avoid being pressured by external factors like market trends. Focus on internal, personal factors when deciding to buy a home.

Consider the long-term financial commitment and potential risks before purchasing, including the possibility of future interest rate hikes.