What if the Real Estate Market Drops?

A constant concern on the mind of any property purchaser is: what if the market drops? People are understandably nervous as a dip could mean the loss of an excessive amount of income. This can cause hesitation, we find this fear is what holds people back from diving into real estate. Understandably so. The market has highs and lows, but it consistently goes up while it dips and peaks.

Purchasing is always a more sound use of your finances than renting. If you are renting for no matter how long, the money you’ve put in is doing nothing for you. Sure, you have a place to live, but the money could be better utilized with property that can either gain value and/or you can eventually sell.

Imagine you purchase a home at $500,000 with a 5% down payment while steadily paying down the mortgage. Picture prices going down by 20%, which has never happened in the history of Canada and is exceptionally unlikely to ever come close to occurring. This would put the value of the home at $400,000, that’s a “loss” of $100,000. If you’ve lived in that home for 25 years, that’s substantially less that would’ve been paid in rent. The cost of the mortgage would be around that of the monthly rent. In roughly 20 years you would have the property paid off along with a still valuable property to either live in or sell.

The market will inevitably adjust in and out of your favour. The long-term benefits always outweigh the temporary losses. Rents will always go up over time, even if immigration isn’t steady in your area, birth rates will continue to be. Property values will also always increase over time. As you continue to pay off your mortgage, the principal debt will decrease and your equity will increase. Don’t just see it as buying a property, see it is as the investment it actually is.

It depends on where you’re looking. Different regions have different factors which influence the value of the property. Toronto will have different rates and trends than Houston. Just in Toronto alone, there are so many fluctuating areas and markets, as The Annex and The Beaches are so different. Any big city will have it’s own dissimilar subsections. You absolutely must do your local research, if you don’t do your due diligence you can put yourself at risk. Follow the trends and investigate what is selling and for how much.

There is risk with any type of investment, but depending on your market this could be one of the safest possible expenditures. If the market drops, you’ll still be secure. You just have to be comfortable playing the waiting game. It’s only ever a loss when you sell.

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