Well on to the commentary then…One of the most common questions on people’s minds these days is, “Is now the time to buy a house?”

The financial news these days is overwhelmingly bleak. However, lost in all the noise is the fact that while the economic conditions are perilous, the global response has been unprecedented, and if even moderately successful, will likely prevent the economy from falling over the edge, providing a floor from which expansion then can occur. As a result, this just might very well be the moment for some to jump into the real estate market. Here’s my reasonably informed opinion why this is so.

Desjardin’s economics forecast team publishes the very insightful Desjardin Housing Affordability Index (DIA) that covers major urban centers in Canada. The index is calculated based on the ratio of after tax income over the required carrying costs (carrying costs being mortgage payments + utilities + property taxes) of an average priced home in Canada. The index is calculated by urban centers and then aggregated to arrive at a national figure. In the last quarter of 2008 for Toronto, the DIA stood at 116, up from 110 in the third quarter of 2008. An index value of 116 means that average disposable income exceeded the average costs of carrying a house by 16%. Therefore an increasing index value means that affordability has increased, and a decreasing number means housing affordability has declined. So between the 3rd and 4th quarter of 2008, housing affordability increased 5.9% in Toronto/GTA. Historically dating back to 1988 to now, the average index value has been 118. At the end of 2008, for Toronto, we are now at 116, within a stones throw from the historical average of 118.

But wait, from a real estate buyers viewpoint it gets better, the DIA data is based on year end December 2008 numbers, and we are now in March 2009, since the DIA was published a lot has happened. Of particular importance, the Bank of Canada has cut interest rates twice, each time by 0.50% as a result, the Bank of Canada overnight funds rate has fallen from 1.5% to 0.50% today, a fall of 67%. This almost certainly means that houses today are more affordable then they have historically been in the GTA (we will have to wait for the next DIA to be published to confirm this, but from my viewpoint this is a certainty)!

An example here would be helpful. Last year at this time the median home price was $382,048, so with 10% down, and a then current discounted five year fixed mortgage rate of 5.89%, a typical well qualified buyer would pay about $2639 to carry the average priced house, inclusive of mortgage payments, property taxes, and hydro. Today, in February, the median home price in the GTA is $361,305. So assuming the same 10% down, and a current discounted five year fixed mortgage rate of 4.25%, the same average priced home would now carry for $2,191. This is a difference of 17%.

How to understand this? The median house price only fell 5% on year-over-year basis for February 2009, but yet the effective carrying cost of the average home has come down 17%. The point being, the Bank of Canada has put houses on sale, without triggering a drastic collapse in home prices. Most buyers I deal with don’t primarily look at the price of a home, what they principally look at is how many bucks they have to shell out each month to live in the home they desire. From that perspective, houses today are on sale big-time. Combined this fact with favourable listing to sales ratios (about 5 to 1), then it is clear that the cards are in the buyer’s favour (sellers are no dummies however, they know today’s pricing factoring finance costs, are a deal and will resist excessive discounting).

During the rate announcement of March, the Bank of Canada governor indicated that the bank was done with interest rate cuts. Really the only cut the governor possibly could make is another 0.25% to bring our overnight rate in line with the US, but that is not likely to happen. So we are likely done in terms of mortgage rates falling further. Given this fact, and the fact that listings to actual sales so favour buyers, I’m gong to go out on a limb here and say that price declines for GTA real estate are likely done (this is contrary to a lot the sentiment out there from the business media, see Macleans magazine!), or if not, we would only see further modest erosions on an aggregate level. However caution must be exercised here not to over generalize. Real estate pricing is very local condition specific. For instance, houses in Oshawa, could very well see price declines of another 10% or more! In some neighbourhoods we could very well see price declines stop and even increase in some cases. But on the whole, I’m expecting to see housing prices stabilize somewhat near where we are now or at slightly lower levels (5 to 7%) from current valuations.

Could we see a further big price decline? Sure. More massive job cuts, another finance shock resulting in credit drying up, are all within the realm of possibility, but as things stand right now, to me buyers, especially first time buyers, this is your moment. It’s a great time to buy, if you’re in it for the long haul, and you have the means to buy. The smart buyer is going to be able to buy the house they want at a price point below historical cost to carry. Amidst all the doom and gloom of the moment, that’s something beleaguered consumers can cheer about.

Ray is the President of Hero Mortgage (www.heromortgage.ca), an independent Toronto Mortgage Broker and a registered Real Estate Salesperson with Right at Home Realty Inc. (www.rightathomerealty.com), Toronto’s largest independent resl estate brokerage. Ray can be reached at: 416-915-3838 or by email at: rayk@heromortgage.ca.