The question on everybody’s mind right now is whether to sell now, or to sell later.
Or as Morpheus might ask… “Does your story end and you wake up next week with a SOLD sign… or do you stay in Wonderland and see how deep the rabbit hole goes?”
We are currently in a housing boom like many of us have never seen in our lifetime. Who would have thought that a global pandemic would have created such an incredible set of circumstances?
In the last 24 months, Milton has seen a 47% increase in property value, which translates into about $500,000 worth of gains for the AVERAGE home.
So it’s easy to see the appeal of cashing out. But then the challenge becomes jumping back into the market.
You love it when you sell, but it’s not so fun when it’s time to buy.
Keeping the question as simple as possible, let’s forget any purchases for a minute. Let’s JUST talk about whether we think the market has enough momentum to last through the first half of 2022, or whether the end is near.
Beyond mid-2022, it’s very difficult to say what will happen.
I’ve had a very interesting email dialogue going for the past few days with my client and his friends, and I thought it would be fun to share some of the arguments from both sides.
As stimulating as these conversations can be, please keep in mind that they’re really as hopeless as trying to predict the actions of an animal in the wild.
The market has a level of unpredictability that will ALWAYS be there, no matter how deeply we analyze it.
Sell NOW
The arguments for selling now are mostly related to expected interest rate increases, which can reduce buying power for home shoppers.
Without getting too heavy into scholarly economics, I’ll try to keep this super simple. Governments use interest rate increases to put the brakes on inflation, and right now there are a number of factors that have started to cause inflation to rise.
These include a surging job market with increased wages, increased spending by consumers and the government, and increased cost of goods and services.
It’s VERY likely that interest rate increases are coming VERY soon. But how does that affect a buyer?
A 1% increase in interest rates will drop a buyer’s mortgage qualification maximum limit by about 10%. If they qualified for $1,000,000 at the current rates, if the rates increased by 1%, the maximum qualification would drop down to around $900,000.
Plus, the rapid increase in housing prices right now has been 500% faster than overall inflation, and 10x faster than current wage increases. If people aren’t making more money, how can we expect them to afford these prices?
The “Sell Now” argument is also about this: How much MORE can possibly be left?
Sell LATER
This is where the “Sell Later” crowd comes in, and says that the market has been going strong for about 30 years, except for some very short-term dips. Why would it stop now?
With Canada expecting to welcome more than 1 million immigrants in the next 2-3 years, and with a serious shortage of housing supply, the basic principles of SUPPLY and DEMAND indicate that prices should continue to increase.
It’s not unusual to see 8-12 offers on many houses for sale right now. Even if 20-30% of the buyers dropped off, there will still be plenty of offers to choose from.
There’s also a huge transfer of wealth from the older Baby Boomers to their children and grandchildren, with some estimating that 40% of purchases are now assisted by relatives. This helps to alleviate some of the pressure from the higher prices.
The “Sell Later” squad will also point to housing as a huge part of our economy. The government has a very direct interest in not seeing it fail for many reasons, including the fact that the government is backstopping mortgage defaults through the Canadian Mortgage and Housing Corporation (CMHC).
If interest rates go up, we MAY start to see the government ease off of their stress tests which were introduced in 2017 to prevent borrowers from biting off more than they could chew when interest rates increase. This could reduce some of the pressures caused by inflation and rate hikes.
What should we do?
Most people will find a pretty equal amount of points on both sides make sense. That’s the dilemma. It’s a very interesting time in the real estate market.
A good question to ask yourself that might settle any tie-breaker is, “Which option helps me sleep better at night?”
Make choices that give you the most peace of mind.
You’re really playing a game of “chicken” with the market. The longer you hold your course, the better off you are. Until it’s too late. Real estate markets change quickly. By the time you realize something has happened, it’s too late.
But the magic, as Kenny Rogers will tell you, is to know when to hold ’em and when to fold ’em. You won’t know if you did the right thing until months later!
Whether you choose the red pill or the blue pill, we’ll be right there by your side, helping you any way we can.
