Like many things, the real estate market is cyclical – and this year, many residential homebuyers and investors alike are left with the impression we are moving, slowly yet surely, from a balanced to buyers market.
Continually increasing interest rates (the initial hike was the first in 7 years), media opinion and transforming mortgage financing options, can feel a little jarring for those inexperienced with real estate, focusing on less competition and reduced year-over-year appreciation in certain areas rather than the long-term value increase and leverage opportunities of owning property.
Alternatively, seasoned homebuyers and investors recall the days of over 20% interest rates. While there is no guarantee they will get this high again, the Bank of Canada has shared that the last decade of low interest rates were utilized to stimulate the economy and now that stimulus can be ‘steadily withdrawn’.
What do these changes mean for those looking to make a move? Below we’ve outlined a few different ways to capitalize on current market conditions:
Overall, competition has reduced. While some will opt to ‘chase the market’ waiting for a crash – from now until then (whenever then may be) the market continues to appreciate. According to The Toronto Real Estate Board, while sales are down 1% compared to October 2017, the average sale price is up 3.5% year-over-year to $807,340. Notably, price and growth being driven by the condominium market and supply-and-demand of urban properties under 1MIL – of which there remains a strong buyer-pool.
If your intention is to buy and hold long-term, waiting for prices to go down while interest rates increase is counter-intuitive; instead, now is a great time to take advantage of diminished consumer confidence and secure an asset.
Considering a bigger space? This is the ideal spot to be in. ‘Move-up Buyers’ – those trading-in their small urban condo for a detached house have an incredible advantage.
For example, downtown Toronto condos (especially those under 500K) are up 11.74% since last year. While detached houses outside the city core (in neighbourhoods such as High Park and the Danforth) have appreciated on average 6.10%. Small, downtown condos also have a larger buyer pool, being an obvious choice for first-time homebuyers and hands-off investors alike – able to capitalize on heavily increasing rental rates and the ease of ownership.
To truly take advantage of the ‘move-up’ scenario, we’d recommend buyers make a neighbourhood change – lateral moves are expensive and the supply-and-demand of detached houses in the downtown core are trading on-par with condos at 11.55% year-over-year.
So, with the starter market moving nicely and upper price points taking longer to sell, those ‘trading-up’ can take advantage on both sides!
If your life-stage warrants the ease and reduced financial commitment of a smaller space, consider making the move sooner rather than later. Most of our peers in the industry expect that the market will remain calmer for several years, as consumers adjust to the new rates and benchmarks for qualifying. If this is part of your retirement, the steady increase of interest rates over time has the potential to disqualify a number of purchasers from larger price points.
Written by: Sarah Miskelly – Lead Sales Representative