The Ontario Government has just introduced the first balanced budget since 2008. You will recall that 2008 was our biggest real estate correction and our US counterparts faced the largest housing down turn in our recent history. Some would say this budget is was balanced on the onetime sale of government assets and payments made to Ontario by the Canadian Government. In times of economic downturn, like in 2008, it is said by most investment experts and prominent business people that you should make purchases and acquire debt when it's cheap. This is the same mindset as people like Warren Buffet and Stephen Jarislowsky, buy when others are panicking and selling. The buy and hold method has helped these individuals acquire massive amounts of investments. Some would argue that our government should do the same.
Since we have a balanced budget, we should do what we can to hammer down the debts that we have and decrease the net debt to GDP ratio.
If we look at it at a micro level in our everyday lives, we should heed the same advise. When applying for a mortgage, our banks use GDS and TDS ratios to help determine the affordability of your debt. GDS is Gross Debt Service ratio takes into consideration items such as Principal payments, Interest payments, Property taxes, Heating costs and 50% of applicable condominium fees. TDS, Total Debt Service ratio, considers Principal payments, Interest payments, Property taxes,Heating costs, annual site lease (if leasehold tenure), 50% of applicable
condominium fees and all loan payments(credit cards, student loan, credit lines etc.). TDS should not exceed 32% and GDS should not exceed 40% in order to ensure affordability of loan payments. So the lower the more affordable and less debt you carry. Ontario's net debt to GDP ratio is around 38.9% and will trend down to 35% according to our Finance Minister Charles Sousa and the latest budget.
The one thing I see in this budget that affects the real estate market is the non-resident speculator tax already spoken about this year prior to the budget release. The government is also trying to cool down speculation of residents, not just non-residents. They are doing this by requiring full disclosure on those purchasing homes and those who are speculating. Many loopholes to close. I am not one for "more" government intervention but on the surface I can see that it is important that our kids and future generations find a place to live and not be crowded out of the home market. After all, when you live here in Ontario you will raise a family, get a job or create jobs, send family to schools and generally contribute to the economy which is good for all of us. Whether or not government intervention can help with this remains to be seen.
One thing is certain, the housing market is escalating at a rapid rate and first time home buyers are getting locked out due to affordability. I feel the key is to be patient and not make any rash decisions and try and "win" your home purchase by exceeding your affordability. Look within your budget and maybe you won't be able to afford that larger home with all the features you hoped for, today. If you purchase something within your budget and wait you will be happy that you own your own home and work on raising your family, enjoying the community and your life with less debt. When the time comes you can "upgrade" to the home you had initially wished for.
Take advise from some of the most successful investors out there, buy when others panic and pay down debt when times are good. Imagine the deals on the homes that could be had if we could wait a bit. Markets go up and markets go down, the one consistent factor remains the broker you work with. Choose consistency, choose well.