“The most important guidance I can offer a client is to not be distracted by the headlines and decide that they are merely caught up in the tide of current market trends. The fact is, most people will resign themselves to being victims of circumstance, and I suggest that that’s too easy a cop-out.”
With most experts agreeing that it’s a matter of “when” not “if”, you might be wondering what that means for you, your home, or your investments.
Exactly how much housing prices will fall is anyone’s best guess, and these types of impacts are often geographic specific, but many are expecting them to drop around 15% to 20%. The drop has already begun in a concentration of small markets, but it’s only a matter of time until the greater housing market follows suit.
Crash vs. Correction
The good news is that what’s starting to happen now is not yet a full-blown market crash like the one the U.S. experienced in 2008. However, nothing is for certain, so let’s understand the difference.
Housing Market Crash
A crash is an abrupt and significant drop in prices brought on by a number of factors, but is often associated with an inflated market or market bubble. A crash can result in massive losses in value in a short period of time. Canada is currently presenting the leading edge of these symptoms.
Housing Correction
A housing correction is not nearly as disruptive as a crash and occurs over a longer period of time. It is simply things balancing out and home prices returning to a more normalized levels.
Learning From The Past
2007-08
The financial crash that brought housing prices down 40% in the U.S. was weathered far better in Canada, where prices only fell by around 8%.
1980s - 1990s
Canada witnessed a large housing bubble resulting in a crash in the late 1980s. Across the country, housing prices fell by around 30% to 40%.
With the current bubble rivalling that of the one in the 1980s, a correction is coming. However, many believe that it won’t be a sudden crash or reach the lows it did over 30 years ago.
What Does This Mean For You?
“It is always the right time to start implementing personal best practices, and that begins with taking a very genuine (and sometimes hard) look internally in order to decide which habits are serving you well, and which habits deserve a little tough love.”
A housing correction can mean a lot of things to a lot of people, depending on your situation.
First-time Home Buyers
For those looking to buy their first home, a housing correction can certainly be a welcome sight. As much as a correction may seem appealing, housing prices may still seem out of reach for many. Consider a new way of thinking.
This may seem like a new concept, but markets respond to the will of the people, and mortgage contracts are likely to change as more people begin exploring alternative ways to buy a home. Co-buying a property is no longer reserved for husbands and wives. Instead, many are purchasing mortgages with friends and even complete strangers, just for their chance to enter the market.
It’s worth noting that the “way we’ve always done things” in Canada isn’t normal. It’s actually quite abnormal compared to the way the bulk of the world’s population looks at housing. Multi-generational housing is normal in much of Asia, South Asia, and Europe. It may well be feasible for two co-workers, or friends, or even complete strangers to look at a housing investment partnership as a viable alternative to outrageous rents or the inability to get into the market at all.
“I’ve expressed concern over the last several years (the last two in particular) over a disturbing trend by Canadians who appear to have looked at the historically and artificially low interest rates as an opportunity to further extend themselves into spending more than they would otherwise, and buying more home than they would normally qualify for, instead of using these low rates as an opportunity to pay down debt, buy a home knowing that the payment will be manageable even when rates rise, and just to get ahead. This was a dangerous trend that is now beginning to present itself as predicted.”
Remember, getting housed is the goal and the first step is always the hardest. This doesn’t have to be a lifetime commitment. Once you’re in, you’ll develop a track record. The money you are spending / investing is going toward your portion of the equity, plus you gain appreciation, especially if you are able to buy in a depressed market.
If this is of interest, reach out and talk to a Solid Ground licensed mortgage professional, and we’ll be happy to assist with the basics as well as ensuring that you have a list of questions and points to cover with your real estate lawyer.”
I Just Bought A Home
If you just bought a home, chances are you won’t be looking to move for a while. That said, if you bought the most house you could afford when rates were low, the increase in rates, inflation and the increased cost of living may be causing some added pressure. Rates are expected to remain in this current region for at least two years, while global pressures are expected to impact the markets.
Again, ideally, now is not the time to sell. Selling for a loss, or incurring penalties to break current contracts could be considerable. Now is the time to take a closer look at how to offset the added pressures, with additional income opportunities, or areas and habits to trim.
A housing correction will lower prices in the short-term, but housing prices always return to an upward trajectory. Speak with a Solid Ground licensed mortgage professional to discuss the best option for you, before you make any sudden moves. The call is free, and has no strings attached.
“For those who exercise solid fundamental financial practices, including the simplest of things like foregoing excess eating out and convenience nice-to-haves like retail coffee, as well as simply keeping that previously loved vehicle just one more year, the net savings and improved financial position can be astronomical. Too many people are spending recklessly, tempted by incentives, and buying on credit. I’m not for a second suggesting that we live our lives deprived of happiness. I am suggesting we get together and take a look at some opportunities that will get you closer to your true goal with a plan that you will find worth following. It’s about priorities, and I have some amazing real-life client examples of people who are today in a place they never dreamed would be possible.”
I'm Close To Closing
If you’ve just recently signed a contract to purchase a home, and waived your conditions, but not yet closed the deal, you may want to connect with your broker and lawyer right away.
Signing a contract has certain implications, including the implication that you intend to go through with the transaction. It also sends a message to the seller that you are giving them a certain level of confidence that they can proceed with a contract to make their next purchase etc.
This is not a fear tactic, but the appraised value of the new home may have changed. This may affect your ability to close the transaction. As people often include 30-90 closing periods, ensuring you have a contingency plan in place is key.
I’m An Investor
With mortgage rates going up right alongside the cost of housing, those investing in the housing market will need to protect themselves.
Firstly, as mentioned before, housing prices will return to an upward trajectory. When exactly that will happen is unknown, but holding for the long-term can offer protection from high-inflation periods.
However, you never want to put yourself in an over leveraged position. In the event a property loses the ability to generate revenue, even temporarily, you need to ensure you have the cash flow necessary to cover the property yourself. While holding for the long-term is good, it may be better to sell property now to reduce your debt exposure.
We’re Here To Help
It’s a turbulent time in the real-estate market, and it’s more than normal to feel overwhelmed. Find an expert you can trust, especially one who will tell you the whole truth, no sugar-coating.
Solid Ground knows your situation is unique and is ready to listen and help you create a plan for the future with honest financial guidance.
