What is going on in the market right now?
Recent interest rate hikes aimed to target inflation have caused a media frenzy. Headlines and news stations are causing panic over the Bank of Canada’s latest 1.0% increase today. The media thrives and profits off of fear, and what is scarier than predicting a market crash? Right now it’s important to take a step back and evaluate what is actually happening.
It’s no secret that the housing market is changing. New figures released by the Canadian Real Estate Association (CREA) revealed that the country’s home price index fell 0.6% between March and April, its first decline for over two years, as home resales also dropped by 12.6%.
The actual national average home price has now declined for two months in a row after peaking in February, according to CREA. It might seem like the housing market crash that has been predicted for years is imminent…but prices are still about 7% higher than last year. *Based on April 2021 and April 2022.
Meanwhile, the home price index is 23.8% up compared with the same time last year, although that represents a smaller yearly increase than the 29% it recorded in February.
It seems like everyone has an opinion about what is going to happen next, but here’s the truth, no one can predict the future!
For me, this data suggests we are moving towards equilibrium rather than a crash. We are still seeing values continue to grow, jus not as rapidly as they have been over the past two years.
Conditions are constantly changing and we won’t know where we are heading until we get there. But smart investors know that every market can provide great opportunities.
Right now, it’s easy to speculate and be wary of jumping into the market. I have a lot of my clients who are waiting to see what happens and think the market is going to collapse but here are a few more points to consider.
We’ve been wrong before
At the start of the pandemic, many economists predicted that there would be a housing market crash. While the market did slow for about 3 months, it quickly recovered and hit record highs. This just goes to show we don’t always know what will actually happen until it does.
History doesn’t always repeat itself
The 2008 recession really spooked a lot of people, and for good reason; many people lost their homes. The sudden increase in interest rates helped trigger a seemingly overnight crash in the housing market back then. However, there were lots of other factors including shady practices on Wall Street, poor government policy, and lax lending from banks. It is important to understand that many of the factors that caused that crash have since been corrected and are not likely to be repeated.
Real Estate boards led by top industry professionals are now involved in helping create effective and fair policies, that protect public interests. These boards help guide the government into creating and implementing real estate-related laws and regulations that aim to solve issues without causing catastrophic damages.
Keep in mind, that in 4 of the past 6 economic recessions, housing prices remained consistent, or increased.
Interest rates are still low
Even with the recent hikes, we are still at a great number, the prime rate is still very low. In fact, most mortgage brokers I’ve talked to are still recommending their clients stay on variable rates. Yes, they will continue to increase in the near future, but they could also go back down again in the long term.
The next increases are scheduled to take place on September 6, October 25, and December 6. After these it’s all speculative as to what could take place. Keep focused on your long term plans. It might be a good idea to start with a small payment increase now, to prepare for these increases. Speak to a professional mortgage broker and ask how an increased rate will impact your payments and affordability.
The Sea to Sky Market
Unlike other areas, the Sea to Sky region attracts buyers who are looking to purchase here for the lifestyle. Squamish, Pemberton, and Whistler are all highly sought-after and internationally renowned destinations, it is unlikely that prices will ever completely tank here. There is a large pool of buyers who have been waiting to jump into the market and were put off or priced out these past years. If the market continues to dip a bit there will still be purchasers ready to act. Other world-class North American resort towns like Vail, Aspen & Lake Tahoe, saw housing prices decrease significantly less during the great recession than the national average.
Our demographic is different here than in other regions of British Columbia. We have a lot of high-net-worth individuals here in the corridor, who purchased in cash or with a high down payment. Many of the homeowners here are investors who own multiple cash flow-positive properties and are able to make enough money to cover mortgage payments if rates continue to increase. Whistler has a high number of properties, that have been passed down through families. These tend to be fully paid off or have incredibly low mortgages.
Due to the geographical barriers of mountains and the ocean, there is limited useable land to develop more houses in this region. The Sea to Sky highway is another major limiting factor for future growth. Emergency evacuation routes are not able to support more residents, specifically in Whistler. This has led to limited development allowances and zoning changes from the municipalities. All of these factors will help keep supply relatively lower than in other areas of Canada helping keep demand high.
The benefits of a balanced market
It’s still a good time for Sellers
The average home in North America increased in value by 36% in 2021 alone. This means homeowners who purchased anytime before this are sitting on a lot of equity. While the market may no longer favor sellers as heavily as it did from the end of 2020 to the start of 2022, they will still most likely be able to sell their homes for more than they bought for.
If your goal is purely to sell at a premium and very quickly, you may have missed the mark. Sellers may have to be a little bit more patient and manage expectations. Right now, houses that are priced right and leave a great first impression are still selling, but more slowly.
This is actually a really great situation for any sellers who are also buyers. Sellers can still profit off of their sales and move up the property ladder without being priced out on the buying side.
It’s good news for buyers
Buyers rejoice, your time has come!
Anyone who has tried to buy in the past two years experienced frustration and stress from the market. Properties were selling within hours, in competing situations, and for way more than the list price.
As we head to a more balanced market, properties will sit for longer periods of time. This will lead to some price reductions, as well as taking the frantic sense of urgency we have been seeing for buyers away. As houses continue to sit longer, there will be more time to do your due diligence and allow you to put subject conditions into offers such as financing, selling your existing property, or inspection.
We will likely also start to see fewer competing and multiple bid situations. These were one of the primary causes of skyrocketing house prices in BC. If you were put off by the red hot market and fed up with being in multiple offer situations, this is the opportunity you’ve been waiting for.
More to choose from
The Seller’s market we are starting to shift away from had historically low levels of inventory. Super-low interest rates and feeling like they couldn’t purchase another property prevented many people from putting their homes on the market.
As I mentioned previously, we might not see the same increase in listings as other markets might. But houses will sit for longer and continue to come on, giving buyers more choices. Homeowners can sell their properties to climb the housing market or downsize You can spend your time exploring a property and a neighborhood before you purchase.
For Buyers:
There is always a risk to any investment and it might always feel like the wrong time to jump into the market. Yes, prices could drop even more and rates could increase, but the opposite could also happen. Consider taking advantage of the low level of competition right now. Acting while others sit back might lead to a great deal and could pay out in the long run. Be aware that nothing is ever guaranteed and this dip might not last as long as some people think.
Getting into the real estate market as soon as you possibly can is one of the quickest and safest ways to improve your personal wealth. Money losses value over time and stocks and bonds fluctuate. But property holds its value.
For Sellers:
Take a deep breath and relax! You may have missed the red hot market, but prices remain high. You might not be selling your home the week it comes onto the market, or receive multiple, competing, over-asking offers right now. However, if you’re patient you will likely be able to sell your home for quite a bit more than you purchased it for. A bit of extra effort to get your home market-ready is going to be key.
This is a chance to reassess your goals. You might be able to use your equity to reinvest in the real estate market.
The takeaway
Stay calm…
It’s easy to worry about the future, but the bottom line is there are opportunities in every market if you make well-informed and rational decisions. Heading to a more balanced market might actually help you achieve your real estate goals.
Stop going onto those click-bait websites that use scare tactics to get traffic. Listening to all those armchair experts who treat opinions like facts can make you act rashly, which is often the primary cause of a deal you will regret down the line. Instead, think about the life you want and how real estate can help you achieve it. Educate yourself through credible and reliable sources. If you have questions or are uncertain about your specific local market, it’s always best to talk to a licensed and trusted real estate advisor.
The bottom line is we are shifting back to a market that will have benefits for both sides.
We know that real estate has consistently proven itself as one of the most solid long-term investments and will continue to trend upward in the long term, even if there is a slight dip.
Prices are starting to trend down slightly for the first time in a while but are still up from this time last year!
I’m intimately involved in real estate for the corridor and am always happy to have a chat with you about your real estate goals and how we can achieve the in the current market.
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