If you're like me, you might be getting a little tired of all the negativity in the media. This month I'm going to cut through that negativity and show you something positive...
The real estate market.
Here's why...
#1 - It costs you LESS to trade up in this market.
For those of you who currently own and are considering a move, you may be getting a lot of advice that you shouldn't trade up now because you'll take too much of a hit in the transaction as your home has dropped too much in value.
Nothing could be further from the truth.
Everything in the market is relative, and it's actually the best time to move up.
Let's compare if you sold and bought six months ago vs. selling and buying today in a market that has dropped approx. 10%.
*May 2008, peak average price over the past two years vs. current stats for November 2008 for the City of Toronto.
Scenario 1 - Peak Market at 10% higher than today.
Sale Price: $543,000 Purchase Price: $760,000
Difference: $217,000
Scenario 2 - Same House, Depressed Market 10% lower than peak.
Sale Price: $488,000, Purchase Price: $683,000
Difference: $195,000
The difference to move to a new home costs you LESS in a downward turning market than in a peak market.
#2 - There is a small window of amazing opportunity in the market shift.
There are a lot of people who bought a few months ago before their home had sold. In the peak market that was a safe strategy. But now you have homeowners who HAVE to sell because they are near or past their close date and are carrying two mortgages.
This situation will not exist in the spring market because people will no longer be purchasing before they sell.
There is a lot of opportunity to get a great deal and negotiate with vendors who have no choice but to sell right now and this window will only exist for a couple of months.
#3 - Mortgage rates are incredible right now.
At the peak of the market in May, the prime rate was hanging around 4.75%. Now, the rate has just dropped to an amazing 3.5%. The posted 5 Year Closed rate for TD Canada Trust is only prime + 0.60%
Let's take a $300,000 mortgage as an example.
At the peak market, with a 25 year amortization, your payment at a rate of 5.35% would be $1,805.07 per month with a total interest cost of $241,484.
At today's market rate, your monthly payment would be $1,594.37 at a rate of 4.1% with a total interest cost of only $178,290.
Your total interest cost would be reduced by 7% over the course of 5-years.
#4 - Homes are now within reach for first-time home buyers.
The cumulative affect of lower home prices and great mortgage rates make this an amazing time for first-time home buyers.
Not to mention the higher inventory and less competition for great homes.
A 10% drop in prices translates to a 10% lower mortgage amount, so a monthly payment would be $159.44 less than in the peak market.
If you are a first-time home buyer, the real estate market is on your side for once. This is the time to make your move.
There are other considerations to think about in this market...
How can I sell my home in this market?
Pricing strategy has never been so critical.
If you are buying another home, you need to stop focusing on the magic number you could have gotten back in May. Those days are gone. Realize that you are making up for it on your buy-side.
First, your home has to be priced at value and that requires a very thorough analysis of recently sold homes and available listings within the past week and days, not just the past months.
In a changing market, historical numbers can mean nothing when pricing a home for sale today. And you have to open to staying ahead of the market activity and adjust as necessary.
Pricing above value because you think you want to leave room for negotiation is not an option. Better to turn down 3 offers than get none at all because no one will even look at an overpriced house in this market.
Other strategies to follow...
If you are considering a move in this market, I'm advising clients to follow these strategies:
1. Sell your home first before you buy, or make your offer conditional on the sale of your home. Unless of course you are fine with two mortgages.
2. Make sure your home shows incredibly well and consider having an inspection done before you put it on the market just as you would in a peak market. Do not give buyers any excuse to put in a low-ball offer or negotiate based on an inspection after their original offer.
3. If possible for both parties, try to stretch out your close date so you have plenty of time to shop for your new home.
4. Be prepared to buy just as you would in a peak market. Get your financing approved BEFORE you look at homes or put in an offer. Be ready to put a certified deposit with your offer. Even though the market has slowed down, there are still other buyers who may be looking for the same home.
5. Play it smart. The reality is that we are in tough economic times. Live within your means and consider your complete financial picture when you invest in real estate. At the end of the day, it's a solid investment that for most of us means a roof over our heads, not a statement in the mail.
The Irony
Think of the phenomenon of 'herd mentality'. We are really causing our own grief in some ways here.
Ironically, when prices are at their highest and there is the most competition for a home, people can't wait to buy and will throw thousands of dollars over the asking price just to get a home.
Now, when the market is in the favour of buyers and there is tremendous value and selection out there AND it actually costs less to trade up for current homeowners, everyone is holding their breath.
Another irony is that a lot of buyers are waiting for the market to bottom out. But no one has a crystal ball and we can't predict when that will be.
By the time it's announced that the market has bottomed out, it's already on it's way up again and all the pent up buyers who were holding off for a better deal are now in competition with each other, driving prices up.
In Summary...
I am personally excited about this market.
My clients get the opportunity to:
- Move to a better home for less
- Get amazing deals given the unique conditions of the current shift
- Take advantage of incredible financing rates
- Realize their goal of home ownership if they are first-time home buyers
I hope you forward this on to as many people as you can, if for no other reason than my determination to dispell the myths and negativity in the media that's causing a lot of people to miss out.
To find out what opportunities are in the real estate market for you, and to find out about some amazing deals, contact me today.
And if anyone tells you this is a bad time in the real estate market, tell them to call me directly :)
Best wishes for the holiday season!
Cheers,
Mark
416.728.2499 - info@markrichards.ca
