Tuesday 11 July 2017

What's going on with the market?

There's a lot of uncertainty about what's happening with the market and where things are going to go.  So the question on everyone's mind is, "Just what's going on with the market?"

Unfortunately no one really knows, and that in itself is what's going on in the market.

Because buyers and sellers are just people, the market is always going to be at least partially driven by emotions. So when buyers become concerned about a slowdown, they hold off. And holding off creates the very slowdown they were concerned about.  Add in the sellers who accelerate their plans to sell and list quickly to try to beat the slowdown, and suddenly you have an influx of supply at the same time demand goes down.

If you took emotions out of it, there is no real justification for the slump in the GHTA markets.  The foreign buyer tax that the provincial government implemented only affects about 5% of the market, and only in the areas it applies (it is not province-wide, so foreign buyers can still buy in a large portion of the province without paying the extra tax). Obviously it's not a 100% direct correlation, but statistically that means that if all foreign buyers disappeared, you'd have to have 20 offers on your house before you lost 1.  Oh, so you only have 19 buyers now instead of 20?  Oh, the horror.

The real cause of the slowdown is not a mass exodus of buyers but the market's emotional response.  A moot point, because it still happened, but it is good to understand why it happened.

Add to this the federal government talking about [interest rate increases] and [new rules for mortgage qualification] that will seriously cut buying power even with a large downpayment, and the news that [real estate accounted for 29% of Ontario's economy] in 2016.  (that's construction and purchase prices so doesn't even count the large amount of spin-off business where home buyers go out and buy new furniture, renovate, etc)

No wonder buyers are scratching their heads and wondering what's going on. It sometimes feels like the government is trying to block holes in the dam with sticks of dynamite.

In the short term, my advice for buyers is pretty much what it always is: stay cool and look at actual sale prices.  Minor decreases in price should eventually recover, so think long term if you're shopping for a home or longer term rental investment.  Be very cautious if you're still looking at flipping for quick profits.

On the selling side, be prepared to wait a bit for your sale, and talk frankly with your real estate professional about pricing and where things are in your neighbourhood right now.  Unfortunately, what someone on your street got two months ago may not be what you'll get today - especially if they got it because of competing offers.  Either be ready for this, or be ready to stay put for a while.  This varies depending on where you are in the city, though, because some areas are still selling well.  Again, discuss the specifics of your situation with your REALTOR®.

1 comment:

  1. Very well put Jeff. As a Mortgage Agent myself, it is getting harder to qualify new buyers as well. The main issue we now have is the qualifying rate is 4.64% instead of using the best rate being offered by a lender and therefore leaving a lot of people unable to "qualify" for financing that would have qualified prior to the said changes. I know that anyone using your services will be educated with your knowledge and direction leaving their sale or purchase less stressful.