At this point, you have at least read the headlines. Interest rates are continuing to rise and house prices have been falling. It’s big news, affecting home owners and prospective homeowners alike. It seems like everyone is talking about it.
While many property owners are reacting to the news by converting their variable rate mortgages to higher fixed rate mortgages, other people believe riding out the storm makes more sense for them. Buyers are wondering if now is a good time to buy? Sellers are asking, “Can I even sell my house in this market?” And everyone wants to know what the rise in interest rates means for monthly payments. There are a lot of questions out there and very few answers.
Is now a good time to buy?
The short answer is, Yes.
There is no doubt that the market is friendlier to buyers now than it was earlier this year. Prices are way down from the peak. Buyers can take their time looking at listings and selecting the ones they want to see, viewing them at their leisure, and maybe even going back again for a second look. Then, they can make an offer that negotiates price and has conditions!
If this is the case, why are buyers so hesitant to move forward?
Locking in at a higher rate is scary. No doubt. But with prices down 26% on much of the product the monthly payments haven’t actually changed that much.
Let’s look at the following example:
- A detached property that sold in February for $1.5 million is now selling for $1.11 million (based on the average 26% drop)
- Back in February buyers needed $300k to make the 20% down payment on a 1.5 million dollar property. With rates at 2.45% the monthly mortgage payment was approximately $4700
- Today that same home at 1.11 million would only require a $222k deposit and the monthly mortgage payment at current rates would be approximately $4980
- If you had the 300k down payment that would have been required on this same house in February and put it on the new (reduced) purchase price, the monthly mortgage payment would be less than it was in February at $4543
- Alternatively, you could accept the increased monthly payment of about $300 and save or invest the extra 88k
If the reality is that buyers aren’t paying more and it’s an easier time to get in the market, what’s holding them up?
Fear. Fear that the market will continue to slide. Fear that interest rates will go up again. It’s a collective hesitancy. What if next month the same home sells for 50k less? No one wants to overpay.
With the demand for homes earlier this year came comfort. Buyers were surrounded by other buyers, all scrambling for the same product, fighting for showing times, desperate to just get in the market. The fear of missing out is a real thing.
That said, the fear of missing out mostly speaks to first time buyers and much of our market is made up of upsizers and downsizers. These people have a different fear… the fear that they won’t be able to sell the homes they already own.
The need to sell a home in this market is definitely impacting decisions around buying. Homeowners who previously felt extreme confidence in the salability of their properties are now asking serious questions about the process.
Is it safe to sell a home in this market?
Homes are selling. In September we saw 83 detached homes sell in Burlington with an average of 25 days on market and prices stabilize at levels recorded in the previous month.
That said, buying before selling isn’t recommended unless you have the ability to close your purchase without a guarantee of the funds from your sale.
Committing to buying a home is serious. Non closure is not an option. While many people believe that the result of non closure is simply losing a deposit, this isn’t accurate. Buyers risk being on the hook for all of a seller’s financial losses as a result of not closing.
Consequently, banks are telling clients that a condition on sale of property is a “MUST” with any deal right now. And, slowly we are starting to see sellers accept this condition.
This is a complete reversal on previous market conditions and recommendations, when the challenge to buy was so extreme. But it is the safest way to operate now.
For many people this may be a uniquely good time to sell and buy. Depending on what/where you own, you might have noticed the gap to upsize has narrowed.
If you are in this situation, ideally you could go out and look at bunch of properties, gain confidence in what you’re seeing, establish that once you sell there will be enough out there to choose from and then sell your home with a long closing. The long closing would then give you some time to shop the market and not have to pick a property immediately.
For many people this may be a uniquely good time to sell and buy.
Depending on the client, this plan can work quite well. But it’s not the answer for everyone. If you’re looking for a needle in a haystack kind of property, you probably have to go with a condition on sale of your property instead…. And just hope that you’ve landed on a seller who will accept that.
If we have made a solid plan to sell your home at a reasonable price, we can pitch that to the seller/selling agent and make it more likely the condition would be accepted.
The truth is that the real estate market we are in now is a more “normal” market. We can all breathe a littlle. We became so accustomed to abnormal because it was our reality for many years. Bidding wars and unconditional offers, will likely come back again, but for now we have a break from that. Those who have the ability and can see the long term benefit of being in the real estate market, will continue to buy and sell. Interest rates may have gone up but the desirability of the local market hasn’t changed. Real estate is a long game and being able to weather the changes is the key to succeeding.
If you have questions about the value of your home or have been thinking about making a purchase and want to talk more about the market please don’t hesitate to reach out. We are always happy to make time to speak with you and any of your friends or family members.