You Shouldn't Buy Pre Construction Homes in Calgary Right Now

Saying that now is the worst time to buy a new home is a strong statement. Here is some data that you can analyze to understand if this is true or not.

A newly-built house is a significant investment for your family, so you have to consider various factors to ensure that your future will be manageable.

Rising Interest Rates

The first thing that you need to understand is that you cannot lock in your interest rate. If you sign a contract for a home that will be ready for possession in the next 16 to 24 months, you will not be able to lock in the interest rate upon the signing date.

According to the Mortgage Sandbox forecast, interest rates could be anywhere between 3.3% to 4% by the fourth quarter of 2023. However, as early as the end of the first quarter of 2022, we have already seen interest rates as high as 3.08%. If this trend continues, interest rates could shoot up to 4.5% or 5%. This means you don't know what your payment is going to be in the future.

Escalation Clauses

A builder contract is not similar to a real estate resale contract. Each part of a resale contract is well thought out to have balanced sections in favour of the buyer and the seller. On the other hand, a builder contract is drafted by the lawyer representing the builder. As these lawyers are working for the builders, they have their best interests in mind.

In Calgary, you can often see price increases on escalation clauses on builders’ contracts. For some builders, escalation clauses are clearly stated. But a lot of times these escalation clauses are hidden or hard to find. And some don't have any at all.

Here are some real-life scenarios that agents shared in a realtors' community in Calgary. One realtor told a story involving a big builder. They requested to put a term in the contract stating that the buyer would get their full deposit back if the builder increased the price and they could not afford it any longer. The builder refused.

Another agent shared about how a builder forced his buyer to go through their financing department. They said they could give a better rate, or provide upgrades, among many other promises.

On the brighter side, there is one builder that promises a 5% deposit refund in the event of a price increase during the construction period. Should there be a big increase in the home value after the firm sale, the client would have the option to terminate the agreement or agree to pay the increased price at their discretion. This builder has a completely different way of looking at things. Their policy seems a little more transparent, but still, it doesn't lock in the future price for you.

Dealing with Delays and Changes

A common dilemma in buying a new house is the building timeline and delays. Some builders easily say it will take up to 24 months until the possession date. Two years is a long period and many things could happen while you are waiting. Home values could increase, and that increase could be passed on to you as the buyer. As you buy a house under construction at the moment, you could be locking yourself into paying tomorrow's price as you pay today.

Think of this for a moment, if you bought a resale property today, you are buying at today's price and you are getting the property today. Then you could get tomorrow's value when you sell tomorrow.

The other thing is material costs. For example, the lumber price shoots through the roof. Windows were hard to get in the market. Both of these caused a massive delay for some builders.

According to Stats Can, there has been a drastic increase in the residential building construction price last year. Among other major cities in Canada, Calgary had the highest price increase of 33%. And who is paying that cost? Not the builder. They will certainly pass it on to buyers.

Waitlists

Here’s a little secret, waitlists mean nothing in the kind of market we are in right now.

It doesn’t matter if you are in the first, second, or third position on the list. If a buyer talks to a property rep and tells him a very convincing story then offers a lot of down payment, that rep could bump them up in line. The representative has the authority to pick the buyer they want and make things easy for them.

Lining up and waiting on an email list or any type of list with a builder does not assure you of getting a property. You might be hopefully waiting for the chance to buy that perfect new build in the right lot when there could be better resale properties that could have worked for you and you can even buy it at today's price; not tomorrow's!

If this article picks your brains and you want to have more conversations about buying a new build or choosing a resale home, you may book a call with us. We can have a 15-minute conversation to help you through all of this and discover where you should be looking and what you should or shouldn’t be looking at.