Are Rates Getting To You?
Wednesday, October 12, 2022
Right now in the real estate market, you might be asking yourself, “Is the sky falling?”
My response would be: “It’s not falling, and it is a bit cloudy out there!” Right now, with the real estate market all over the place and the rising interest rates, people are getting a little concerned.
We’re going to consider the true impact of our situation, particularly here in Ontario. The great news is, we are heading in a good direction! So far since 2020, sellers have had a bit of a sprint and buyers have been shaking their heads. The trend is changing. Let’s look at the numbers and see how.
1. Inventory levels are rising
During the pandemic, buyers had a tough go with only 1900 properties for sale in August 2021. This was between half and one month of inventory in most areas in Ottawa, and in most price ranges. This August, we had 3000 properties on the market, bringing us closer to our pre-pandemic days of August of 2019 when we had 3200 listings.
2. Inventory levels indicate that we are still in a strong seller’s market.
While inventory levels are much closer to where we were in 2019, sellers continue to have more options than buyers. This summer, we had 2.7 months of inventory on the market. It is helpful to understand that:
- 1-3 months of inventory – buyer’s market
- 4-6 months of inventory – balanced market
- 7-9 months of inventory – buyer’s market
- 10+ months of inventory – a depressed market
To realize how bad things were back in 2020, some months sellers had half a month to 1 month of inventory in most areas in Ottawa and in most price ranges. In August 2021, we were sitting with 1.2 months of inventory. This means we currently have twice as much inventory than we did last year. In the pre-pandemic time of August 2019, we were sitting with 1.8 months’ worth of inventory. This is a much larger increase with our current state at 2.7, getting much closer to a balanced market.
3. The seller’s market is still strong, but it’s no longer out of control
Sales dropped to 1100 in August, compared to 1550 in August of last year. This means buyers now have many more options and are no longer scrambling for the first house they think they can afford. Previously, the attitude was, “Oh that’s a house? I’d better put in an offer!” The worst story we had heard was of a buyer who put in 55 offers before finally getting a home.
Recently, we had a beautiful, young couple come to us to buy their first home in a fairly sought after neighborhood. After finding one they liked, we put in an early offer over asking with no conditions. The seller received a second offer and still decided to wait for a few more days, following the strategy sellers were using in 2021. In the meantime, there was enough inventory that our client found another home that they liked just as much, put in an offer, and bought it. That earlier seller may have been left with a lower offer, or no offer at all. Previously, buyers had to sit tight and wait because nothing else was available on the market. Now, a buyer even has the option to put in conditions.
4. The market is still strong for sellers who are pricing properly
Things are, in some ways, becoming better for sellers as well. While the increased prices were appreciated by sellers in 2021, we noticed many really didn’t enjoy the selling experience the way they normally did. The sense of desperation in the extreme marked (market)influenced many to either move out for a week, or even spend the week living in their car. This closer move to
5. The price drop is counteracting the rising interest rates
So many people have been panicking about rising interest rates. Let’s look at the math to see that the news really isn’t so grim. In a stable market like Ottawa, the market should never increase 25% a year. This quickly outpaces people’s affordability, a factor which inevitably drives prices down.
Let’s look at the numbers. In Feb. and March of 2022, the average price for a home was $800K. Now in August, it’s down to $675K. That is a $125,000 decrease in price! Since March, interest rates have gone up about 2%. So, if you had a 2.59% mortgage back in the spring, now you are looking at a 4.59% fixed rate. Previously, if you wanted to buy that average $800K home and you saved up 10% to put down, which is $80D (K), your mortgage was about $742K. Your monthly payment would be $3,358 on a 25 year amortization period.
Now, in August, let’s imagine you want to buy the same house. In the current market, it would be listed at $675K. If you have the same 80K to put down as in the previous scenario, your mortgage would be $613K due to the price drop. With the interest rate of 4.59%, your monthly payment would be $3,426.
This is a $68 difference. For many, $68 a month is not the difference between being able to afford a house or not. More likely, it means skipping dinner out once a month. Or bringing your own coffee rather than stopping at Tim Hortons. If you really can’t afford that extra amount, the great news is, you only need to buy a house that is $12K less, at $663K. You may lose some element you would like, or require some DIY work around the house. However, you won’t have to change the type of house you want for that amount.
It’s good to know too that you can always find a motivated seller, and it’s possible to negotiate that $12K off the asking price. Recently, we helped another client submit an offer on a property with multiple offers. We went in under asking with no conditions, and got the house. It’s always key to remember, “What is the asking price based on?” We always look into whether the number is realistic and accurate.
The great news for current buyers is that your mortgage and downpayment amounts will both be less than they would have been if you had purchased at the height of the seller’s market in 202.
Overall, interest rates and dropping prices mean that housing affordability hasn’t shifted that much over the last year.
Our numbers are based on the Ottawa market on average and should be treated as such. If you would like to know about your specific area, book a 15 minute clarity call with us! It’s so important to have someone go through your situation with you and ask the questions you need to consider to make your best decision.
Buyers’ Remorse is Real
Wednesday, October 5, 2022
Recently we purchased a new condo in Mexico. I, Yetta, needed to go for a week to get it ready for turning it into an Airbnb, so I gathered four of my girlfriends to come with me and turn it into a fun holiday. We were all so excited to see the new place. The condo is a stone’s throw from the beach, with three balconies and spectacular views. You’d think I’d have the vacation of my dreams, right?
Like most buyers, I had a few pictures to help me remember what the home looked like – and like most buyers, the strongest impression I had of the condo was the wonderful FEELING I got when I first viewed the property. As a realtor, you’d think I’d know better than to assume the feeling would stay – and I didn’t.
After the girls arrived, they were all walking around going, “This is awesome!” I, on the other hand, became increasingly upset as the first day went on. Technically, it’s called “buyers’ remorse.” For me, it felt more like frustration and agitation.
I think what got me into this day was I didn’t expect it. Even though we’ve had many properties over the years, I’d never actually experienced buyer’s remorse. As a RealtorⓇ, I have the conversation with my clients to set them up so they don’t experience it. So I assumed I wouldn’t either.
What made things worse was I had never actually been IN the condo. I had seen the property and pictures of the condo, but I’d never seen it with my own eyes. And so, while the girls saw the spacious interior and stunning views, my hyper critical eagle eye noticed the peeling paint, broken appliances, and electrical issues. Not only that, but as a RealtorⓇ, I saw everything professionally that wasn’t right with the house or the property. It was the most expensive property I’d ever purchased for myself. It was the perfect storm to hit my emotions, and I began to spiral.
I kept thinking, “I just want my money back!” I felt overwhelmed with doubt and uncertainty. You know that queasy feeling in your gut? I was sick to my stomach. So while the girls were exclaiming over everything, the negative comments stood out to me and what was intended to be good comments I interpreted badly. All my feelings were playing in and cluttering my perception of what was really going on.
I forgot until later that the awful feelings that came next can be a normal part of the home purchasing experience. It was the sense that I bought something really, really big. And that I made a huge mistake. Did I really make a mistake? At the time, I would have very boldly insisted, “Yes, I did!”
My friends were very confused because nothing actually happened out of the ordinary. They were wondering, “What is going on? Why on earth isn’t she happy?” What had happened was simply a perspective switch in my own mind.
So what causes buyers’ remorse exactly?
It’s commonly one of two reasons.
- You viewed the property with rose coloured glasses.
Many homeowners can experience this because when they purchase the property, it is fully staged. Nobody’s lived there for a week, they vacate, they make it perfect, they vacuum their way out of rooms, and then just make it perfect, right? No finger marks on the windows, nothing.
Then you get your final walk through when the previous owners haven’t cleaned the house for a few weeks. And you’re unpacking, and everything’s everywhere. And it will destroy your memory of what was there.
Or even, maybe you don’t have a final walkthrough and now it’s close in time and you move, you go there, you get your keys, you’re all excited. And you got the memory of a stage, magazine quality property, you move in and all their gorgeous furniture is gone, the lines might be gone, the paintings are gone. There’s holes in the walls and you can now see the grime and stains hidden by paintings, furniture, and rugs. Or you see every mark on the cabinets, because there’s nothing to take your eye away from every little issue.
- The finality and financial cost feel hefty.
Maybe you can’t sleep because you know you’ve made one of the biggest decisions of your life. Perhaps you are becoming hyper aware of the financial aspect and you don’t feel prepared. And you go oh, did we do the right thing?
So what do we do when we have buyers’ remorse?
We’ve talked many clients through the process. The first thing is just to recognize that could happen, right, as we talked about in the earlier segment, and that is kind of natural.
The next thing I would do is, ask yourself, what would you ask someone to ask themselves if buyer’s remorse happened to them? It really makes less sense to basically turn the question on yourself. Ask yourself “what is good about this decision? What caused you to make the decision in the first place? Why did you make this decision?
When I asked myself, I thought, “Oh, well, because of proximity to town and you can walk to, like 50 restaurants. Because the beach is in front of your face, and you can reach out and touch it. The pool is right there. It’s got its own hot tub. It’s a two storey so when we have guests, or even my parents, they can be on one level. We can be on another so we have privacy, even if all the grandkids come.” The reasons for us were huge.
And when I began focusing on that, I was able to put the 13 years of deferred maintenance into perspective. The more I thought about it, the more I realized how small those issues were compared to the benefits of the property. It was much easier to feel calm after that.
So, if you are caught in the snare of buyer’s regret, ask yourself, what was your reasoning in the first place? What was your motivation? And does the property still meet that motivation? Yes, there might be some extra elbow grease and sweat labor or money’s gotta be invested to bring it up to your expectation level. But do the original reasons that motivated you to buy it still apply?
Here is another interesting thing to consider about buyer’s regret. Often property purchasing is a team effort, particularly between significant others. What do you do when you are the one excited, and your spouse is the one upset?
It can be an ugly situation. There can be tension because both people are in two different emotional states. It can be hard for you not to go into problem solving mode because you want to convince your partner to feel the same way. And you don’t want them to break your bubble of bliss.
We strongly recommend that in this case, you allow the person to feel what they feel and to be where they are. And to allow them the space to talk it through. Actively listen and respond to where they are at, such as, “Yeah, that’s tough.” Then, when the person feels heard, begin asking them what motivated them to make the purchase in the first place, as a gentle reminder.
It is key to remember that there’s a process and the emotion will pass and it does not mean that it’s a mistake.
If you have bought a property and are experiencing buyers’ remorse; or if you are about to make a purchase and would like to prepare yourself for the roller coaster of emotions you may experience, book a consultation with us. We’d love to help you navigate the process. We’re in this together!