If you predicted a soft start to real estate in January, you were right.
I’m sure you based your prediction on numerous factors — including (but not limited to) the OFSI stress test, the increasing number of homes for sale, mixed messages from the media, and even Mattamy homes slashing their prices on the sale of new homes by almost $100k lower than identical homes sold in a previous phase.
Then again, January is typically a slower month in real estate — compared to the rest of the year.
Psychological factors are holding buyers back from entering the market.
Sellers are stubbornly clinging on to higher prices.
And the prices of detached homes have skyrocketed and are now starting to fall.
The price of detached homes in Toronto were down 3.9%.
But semi’s, townhouses and condos were all up.
Semi’s up 3.7%.
Townhouses up 8.2%.
And condos a whopping 15.1%.
In 2017, you witnessed the rise of detached home prices especially as inventory grew scarce.
Demand for detached homes has cooled a bit. But this has driven the next affordable housing options up.
Why is the average price dropping?
When sales of properties with lower price points fills the market, the overall average price drops (since most of the recorded sales are condos).
Let’s take a look at January 2018.
In Toronto, detached homes accounted for 376 sales. While condo sales numbered 899.
This is enough to tip the average price movement downwards as majority of the sales are in the lower price point of the market.
But that’s not to say condos are the only culprit contributing to dropping average home prices.
Let’s talk about the interest rate — and the mind games it plays.
Okay, mind games sounds a bit dramatic.
But the truth is, buyers are holding back their purchase based on anticipation, and what they think and feel are going to happen.
We’re anticipating a few interest rate increases this year.
And what does it affect?
If you can’t afford to buy a home at a certain price point, you consider the alternatives.
Buy a cheaper home.
Move to the suburbs.
Stay in your current house… or condo… and just renovate.
Or even… rent…
The drop in sales (on a year-over-year) basis this past January is due to just that. Buyers anticipating what’s to come. And deferring their decision until market confidence returns.
It’s kinda ironic… right?
When inventory is scarce, and the number of homes selling keeps going up, buyers want to jump in and grab their piece of real estate.
But now, with more than DOUBLE the number of listings on the market in January 2018 versus January 2017, sales have dropped.
Is this a good time to buy?
If you can afford it — yes. And I’m not just saying that because I’m in the real estate business.
But because I’m watching the market, every single day.
I’ve watched neighbourhoods where homes are selling anywhere from 5% to 7% below their asking price. (Remember last year when everything sold more than asking?)
I’ve seen million dollar homes drop into the $900’s.
And homes that should have sold in days that are now sitting on the market for… over three months!
If you can make your numbers work, and you can afford to enter real estate, there are deals out there.
But what if you’re scared to buy now?
Perhaps you’re anticipating the effects of not being able to afford mortgage payments as interest rates go up?
Or you might be afraid of paying too much especially if sellers get more motivated, more homes flood the market, and prices start a downward trajectory?
You’re definitely not alone.
If you own a place, you’re probably thinking of sticking with it, renovating, and waiting out what happens in the market.
I’ve even worked with clients who figured that renting out their existing property and renting a place (at a cost similar to what they’re currently paying for housing) might be a good option to get into a bigger home and test drive different home ownership options.
The ultimate advice I can give is this.
If you conservatively calculate your numbers, and you can afford to buy a home, and factor in a few rate increases (and you can still afford the payments), you have a month or two of finding a great deal.
Who knows what the spring market will bring.
But it’ll definitely be more active — more homes for sale, and more buyers. That’s not a prediction. That’s based on what happens every year.
The biggest difference this year is that there’s a lot of homes for sale.
So go out and find a deal for yourself.