The residential real estate doomsday-ers are certainly having their moment in the limelight right now, aren’t they? Certainly no shortage of hyperbolic statements bemoaning the recent ‘crash’ in prices.
… but maybe when everyone’s jumping on a bandwagon, the best thing to do is take a step back and consider getting off; don’t follow the herd. Instead of catastrophizing, turn this on it’s head and consider the current circumstances as a gift and recipe for success.
The media might have you believe that right now is the worst time to buy – and this is certainly being supported in the most recent sales’ analytics which show that, while the number of new listings is increasing, the number of transactions (i.e. people buying) is staying relatively flat, if not decreasing. People are hesitant and waiting on the sidelines (both buyers and sellers). On the surface, you might be forgiven for thinking this makes objective sense given all the ‘uncertainty’. After all, why would you want to buy something that will only go down in value (much less sell something at a perceived discount)?! (So why then do people buy cars?!)
The problem is multi-faceted.
First, you need to be able to take a longer-term view. Most don’t. Or can’t. Regardless, just ask yourself: What does it matter what home prices are going to do between now and a year from now if you’re not planning on moving for 5, 10, 15+ years?! By then, and by any historically-informed measure, it will appreciate in value considerably. You just have to be able to weather temporary storms in the meantime. Is that really so hard?
Second, just because properties are ‘cheaper’ doesn’t mean they don’t cost the same on a bi-weekly or monthly basis (i.e. however frequently you pay your mortgage). Most don’t realize at first that actual affordability (broadly speaking as the combined cost of a property’s purchase price and the cost of borrowing – the interest rate charged on the mortgage) hasn’t really decreased by a meaningful amount despite the drop in prices since their all-time highs earlier this year. This is due to the corresponding increase in mortgage rates. Generally speaking, home prices and mortgage rates are inversely related; the higher the rates, the lower the prices and the lower the rates, the more prices increase. So, waiting for prices to fall still further (i.e. thinking affordability will increase meaningfully) when we are confident that the Bank of Canada will raise rates at least twice more is, at best, wishful thinking. With respect to financing, best to get pre-approved and lock in to as low a mortgage rate as soon as possible.
Third, inflation. Another big buzz-word in the media at the moment. Inflation is a tax, eroding everyone’s purchasing power. We know that wage increases rarely correspond, and often trail (time-wise) the actual rate of inflation. This means that it becomes increasingly difficult to save for a down-payment (as discretionary spending – and therefore the ability to save – become evermore challenging). Knowing this, prospective buyers are well advised to consider that they might actually doing themselves a disservice by postponing their purchase if it means it’s getting more and more difficult to save for that down-payment.
Forth, rents. Rents are going back up after a slight pause. Unlike prices, they didn’t really take a hit. This builds on point three, above; it’s getting harder and harder to save for the necessary down-payment to buy a place because more and more of the monthly paycheque is going right out the window to cover rent. Again, if renting currently, waiting unnecessarily to buy is likely a sub-optimal strategy.
So… where were we?
Ok, well, if you are a prospective buyer and were otherwise waiting to see ‘what will happen’, I hope that, in the very least, you’ll reconsider your position and be more inclined to start looking for a property to purchase sooner than later. Start the process in earnest now.
Property prices have fallen and, in most cases represent excellent value from an investment standpoint; it’s a great time to invest now by buying real estate. Take others’ hesitancy as your opportunity to buy a property at a discount; don’t follow the herd.
For example, the sales to new listing ratio is falling quickly into the range indicating a buyers’ market. Download the latest monthly LSTAR Stats package from my website to delve into the numbers and satisfy your own curiosities. I’m not saying this just as counsel to my clients; I practice what I preach and am looking to invest myself. There are starting to be great deals available as some sellers become desperate to sell (i.e., either they’re already committed to purchase their next property or can’t afford to refinance).
Remember, you don’t have to do it alone – seek the help of a real estate professional who will offer data-based insights, offer guiding suggestions and advice and lead the process. You can do it.
Always do something today for which your future self will thank you. Start building your wealth today.