There is a tie-in to Real Estate if you stay with me for a few minutes. In February if you decided to buy one Netflix share you would have paid $457. Today, you would pay $194. If someone suggested that you would pay a higher amount you would laugh.
The prices for Real Estate are down since peaking in February, not as much as Netflix, and if you are a Buyer, you would be crazy to think of paying more for a property now than you would earlier in the year. In fact, if the values are down, maybe you might choose to wait, with the expectations of further drops in values. This strategy works until it doesn’t.
There is a saying that came out of the downturn in the USA Real Estate market in 2008 - 2012 that goes something like this, “no one rings a bell at the bottom.” Here in Durham Region, our market has shifted quickly, with inventory building and values declining, however as fast as things went south the reverse may be in the works with prices spiking again. Really, we have just as many Buyers’ looking for homes, and with the mortgage rates increasing, they seem to have disappeared. However, my experience indicates that like the price of gas, people complain and after a few weeks of “conditioning” they are back at the pumps filling up. The difference in the Real Estate market is that Buyers get quiet, are still keeping their eyes on what is happening, and will re-enter the market in time. The data shows this by the amount of interest our ads are still getting, virtual tour views and inquiries from prospective Buyers.
So, will holding off be a good strategy that will help Buyers secure bargains compared to earlier in the year? The answer to this question will be revealed in the next few months however a give is that there are a few forces at play that we are watching and have no control over.
The Bank of Canada is increasing mortgage rates. This is not a guess, it's part of their strategy to deal with inflation. It is possible that we may see 5-year mortgage rates in the 6% range within the next few months. An agent I am friends with in Arizona commented that the rates in the USA have moved from 3.25% in January to 5.3% with more increases expected. One big difference in how Canada and the USA deal with mortgages are how they qualify Buyers. South of the border a Buyer looking for a 5.3% mortgage qualifies at that rate, where here in Canada with our “stress test” a Buyer would need to qualify at a rate 2% higher. Simply, the Canadian Buyer would need to qualify at 7.3%. This will knock many Buyers out of the market, even if values are at very attractive low prices.
My advice to Buyers, given the “shift” in the market, is to get in as fast as you can. The market turned from a red-hot one to a shifted market almost overnight, and there is no reason that once the new mortgage rates are normalized, the Buyer demand will heat up driving prices up again. If you are a Buyer, on the sidelines waiting for further value decreases, you may be left with increasing prices and higher mortgage rates.
A great story about how quickly markets can change comes from Wendy Starr. Wendy helped Buyers and Sellers during the downturn of the Real Estate market in 2008 – 2012 when the value dropped and people were walking away from homes. A Buyer Wendy was working with (a Canadian no less) was negotiating on a Bank owned property. They were $5,000 apart and the Buyer, after watching a news headline, decided to wait, as the news report suggested that the market would drop a further 15%. This is where the saying comes into play, “no one rings a bell at the bottom.”
In the end, the Buyer held off and contrary to the CNN report, the market surged up and his opportunity to purchase an excellent investment was lost.
Making a sound Real Estate investment, either as a personal residence or rental property, is one where the help of an experienced Real Estate professional can make the difference between being an owner or remaining on the sidelines. Waiting is a strategy where you hope the market continues to fall. Moving now means today's “deal” may be the decision you look back on with a smile knowing that you have an investment that has built over time.
Revisiting how the decision that the Buyer Wendy Starr was working with worked out, the unit was sold to another Buyer in 2012 after the Canadian decided to wait and it is currently on the market for sale. The price it ended up selling for in 2012 was $325,000 and it is currently conditionally sold at $850,000. I am guessing the person selling the townhome is smiling, all the way to the bank.
If you are planning on buying or selling, I would be happy to help you make a move. I can be reached at email@example.com
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