BMO Bank of Montreal
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BMO Bank of Montreal

May 04, 2011 06:00 ET

Property Wars: Nearly One in Five Home Purchases Result in Competing Bids

- BMO survey shows 25 per cent of British Columbians have experienced a bidding war, followed by home buyers in Ontario, the Prairies and Atlantic Canada

- On average, those that do experience a bidding war willing to pay 9 per cent above the asking price

- 58 per cent of Canadians had flexibility in their budget when planning to purchase a home

- According to BMO Economics, Canada has virtually two major housing markets - Vancouver and the rest of Canada

TORONTO, ONTARIO--(Marketwire - May 4, 2011) - With houses still fetching above the asking price in some parts of Canada, a new survey from BMO Bank of Montreal shows that nearly one in five Canadians (16 per cent) have been caught in a bidding war during the home buying process. However, the survey also indicates that some home buyers have come to the table prepared to fight, with 58 per cent building flexibility into their home buying budget.

With the house-hunting season in full flight, Laura Parsons, Mortgage Expert, BMO Bank of Montreal, says Canadians looking to buy a home need to take the proper steps ahead of time to ensure they don't spend outside their means.

"Buying a home can be the most important purchase decision one will ever make, so it's important to take a practical approach by setting your spending limit and sticking to it," said Ms. Parsons. "The shine of finding the perfect home can quickly wear off if you over-extend yourself financially and leave yourself without the wiggle room to enjoy it."

Ms. Parsons adds that Canadians should not spend more than one third of their total household income on housing expenses, including mortgage payments, property taxes and utilities.

The survey, conducted by Leger Marketing, also showed:

  • Those in Quebec are the least likely (4 per cent) to have experienced bidding war during the home buying process.
  • Additionally, 25 per cent of home buyers in British Columbia have been caught in a bidding war, followed by Ontario (21 per cent), the Prairies (16 per cent), Atlantic Canada (14 per cent) and Alberta (13 per cent).
  • The same is true about those living in the suburbs and urban areas compared to those living in rural areas (17 per cent, 16 per cent and 11 per cent respectively).
  • 94 per cent of Canadians had a specific price range in mind when planning to purchase a home, while 58 per cent had flexibility in their budget.

According to BMO Economics, Canada has essentially two housing markets today: Vancouver and everywhere else, with foreign investment apparently driving the former.

"Vancouver house prices are up 13.4 per cent in the past year to March, while the rest of the country saw prices rise a more moderate 4.3 per cent. A few other cities are also experiencing strong price growth, including Regina (9.8 per cent), Winnipeg (6.5 per cent) and Toronto (4.9 per cent), reflecting sellers' markets and the potential for bidding wars in some areas," said Sal Guatieri, Senior Economist, BMO Capital Markets.

BMO offers the following advice for Canadians looking to buy a home during the busy spring months:

Make sure you can afford what you signed up for:

  • Stress test your financial budget using a mortgage payment based on a higher interest rate. If rates rise even 1 per cent, you will need an additional $126 per month on a $200,000 mortgage. If rates do not rise, you will be paying down your principal faster. Either way, you are prepared.
  • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

Think carefully about fixed vs. variable:

  • While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases.

Take a shorter amortization:

  • The shorter the life of the mortgage, the less you pay in interest.
  • Cutting your amortization period from 30 years to 25 years can save you more than $53,000 in interest costs and only increases your payment by $84 per month.
  • BMO currently offers a five-year fixed low rate mortgage with a maximum 25-year amortization at 4.14 per cent.

The Leger Marketing survey was completed on-line from Thursday, March 10th, to Monday, March 21st, 2011, using Leger Marketing's online panel, LegerWeb, with a sample of 1508 Canadians, 25-45 years old, who plan to by a home in the next two years.

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