There seems to be a change in the real estate landscape and you have to wonder: is there any hope on the horizon for qualified buyers for the first time?
This change has only begun to happen in the last few weeks. Our son Dave, who went to see a home just outside of Toronto, had 25 registered offers and ended up exceeding $ 660,000 above the price of the ad five weeks ago. Recently, a house similar to the one in the same area with the same price today has had zero registered offers.
What has changed?
Interest rates have risen and in all likelihood the Bank of Canada is not over yet. There are fewer buyers willing to dip their finger into this market. Prices have not yet fallen and costs have risen. Sure, it’s a cooling recipe, but it hasn’t happened yet.
WILL THE MARKET COLD?
Housing prices in Canada are still incredibly high and that is why – we are still dealing with a shortage of supplies in the desired places, higher levels of immigration have put pressure on demand, along with a strong desire for an urban lifestyle, especially in Toronto, Vancouver and Montreal. The high concentration of buyers has stimulated demand, and the effect has led to higher prices. Bidding wars have become the norm, and successful traders have often been stretched to the limit.
What was once considered a reasonable debt / service ratio, where your monthly household income that covers your housing costs cannot exceed 39 percent, and when the percentage of your monthly household income that covers your housing costs and any other debt can’t exceed 44 percent just don’t cut it anymore. Creditors extend the limits of approval limits to enter into a transaction.
Now don’t get me wrong, it’s still a challenge to find the right home in the right place for the right price. Prices are still so high in Canada because there are just too many people bidding on too few homes, which in turn raises prices. The result is that the buyer is pushed out for the first time. The rich seem to have had the upper hand in bidding wars, where lower interest rates and higher deposits tilted the odds in favor of those with financial flexibility.
Although the challenge of the real estate market may seem obvious – a market with imbalances in supply and demand – this is a very simple statement, without including the causes of imbalances.
During the pandemic, many realized their desire for more housing and shorter commute to work and found a better assessment of how they want to work and where they want to live. The desire to move quickly was supported by an incredibly low interest rate environment, which was designed to deliberately help stimulate demand and offer security for potential home buyers. Politics has become a lifeline for those who want to move or make money from their homes. In fact, real estate has become a pillar of the strength of our struggling Canadian economy. The desired result was achieved.
That was then and it is now.
WILL IT BECOME A BUYER FOR BUYERS?
The once-motivated seller, who may have advertised his home to make money, must now consider a realistic price for the ad amid rising interest rates if he hopes to stimulate interest. This could change the game for new home buyers who can handle higher prices.
Stay tuned, there are still people who want to sell and buyers who can handle higher prices. But they are less, so we will all be watching closely to see if the dynamics are shifting to a buyer’s market from a seller’s market over the last few years.
However, one word of caution to buyers for the first time: just because you can, doesn’t mean you have to. Home ownership is still very expensive. The impact on your lifestyle when you are mortgaged to the brim is significant. The disposable income you once enjoyed, which allowed you to dine out, travel and frequent live entertainment, will be gone. The economy is recovering, so admit that the fear of missing out on your dream home may soon be replaced by the fear of missing out on the lifestyle you once enjoyed.
Before you jump into a more expensive home than you can comfortably afford – just because you can afford higher prices – I think the question still arises: should I?
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