Considering home values in today’s changing market

Jean-Guy Turcotte

Jean-Guy Turcotte

This past Friday I was speaking with one of my referring realtors, and he asked me about the market and what I thought. I jokingly made sure he reads my column every week and then we discussed the current events with regards to the government’s recent changes and interest rates and how it will affect values.

He told me that he heard that values may only increase 1-3% this year, and I said that was great, at least they aren’t going the other way!

Let’s look at even a 1% increase in values on the average home price in Alberta. In September 2010, according to the Canadian Real Estate Association, the average home price was $349,000, and at that time there was a 12-month change of 0.3% so even if we go up 1%, we already tripled the gain from last year. Obviously these increases in values aren’t much to speak of, but it sure beats the other option – renting!

If we only spoke in percentage terms it wouldn’t depict an accurate assessment as to the true value of the increases, and realistically one shouldn’t be buying on speculation alone that home values are increasing, as you’ll likely be holding onto that home for a longer time than anticipated.

Let’s look at comparing renting versus buying, as they’re still a lot of people sitting on the fence wondering if now is the time to buy? To be more accurate for the first time buyer, let’s compare a home valued at $250,000 as most of my first time buyer clients are buying between $220,000 and $280,000. A two-three bedroom townhouse, is currently renting in Red Deer for about $1,150 to $1,400, based on info I found on Kijiji and, which is going to put us in the $250,000 range.

If you were to purchase the home for $250,000, you would have a payment of only $1,106/month (PI only), based on a 30-year amortization, 5% down payment and an interest rate of 3.59%. If values went up that 1%, you’d earn $2,500 on your property in the first year, but you’ll also have paid down your mortgage about $6,500, and after the fifth year, you’ll have paid it down over $30,000! And if values only went up 1% a year for five years your home would be worth $262,752, earning you equity of just over $42,000, can you do that renting?

What I haven’t mentioned yet is the savings that today’s interest rate environment offers you. Pre-recession interest rates were much higher than today’s, and the average 10-year interest rate before September 2008 was 5.35% (StatsCan) for the same fully discounted wholesale rate that’s offered today, go back 20 years for the same period, and the rate is 5.80% (StatsCan). Your parents would tell you that even that is a great interest rate!

The same $250,000 house, if rates went back up to 5.35% would cost you an extra $253/month if that was the only thing that changed, meaning an extra $15,180 in the first five years…and that’s all interest cost – which no one likes, and banks love.

Obviously the benefits of owning far outweigh those of renting and interest rates have just crept back down this past week making the opportunity that much better.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125, or emailed to