Not since a period in the eighties have I felt the GTA real estate market as heated and strong as is it is today. This is a miserable time for buyers and hallelujah for sellers.
Indecisive buyers are finding the cost of entry to the market seems to be rising daily! Buyers with no business doing so feel compelled to make offers to purchase which have no conditions at all.
Related Article: Be careful with those no conditions offer to purchase (The Globe and Mail)
People say the market is being driven by foreign investors, and certainly there is an element of truth to this; particularly in Greater Vancouver, and in the condo market in general. A general lack of supply, as well as heady population growth and low interest rates are also playing an important role.
But it seems to me fear is driving prices even higher. Fear of missing out. Fear of failure. Back when I was a stockbroker we used to say that smart buyers had to be willing to climb a “wall of worry”. Well, here we are.
“smart buyers have to willing to climb a wall of worry”
More buyers are looking to be pre-approved than ever before. Their real estate agents insist on it too. When it’s time to go house hunting they need to know exactly how high they can go. It’s not just how much are they willing to budget, but how much mortgage will they qualify for.
Of course, this is not an exact science. Lenders and insurers are not generic – they each have their own guidelines and lending programs. As always, it is very risky to make an offer to purchase without a condition of financing. Wouldn’t it be ideal if there were a mandated cooling off period for all home purchases?
Ideally this would be five business days. This would give everyone time to be properly approved, and time to conduct an appraisal and inspection of the property. And time to reflect, because so often these days, buyers get caught up in the moment of a buying frenzy, competing against other buyers and sometimes pushing the final sales price beyond reason.
Related Article: Housing prices through the roof…in 1988
British Columbia based mortgage broker superstar Dustan Woodhouse cautions us all to be very careful. And in their market, it’s even crazier than in the GTA. Here is a recent article he wrote.
I have heard many recent stories which demonstrate the sheer strength of this market. Real estate broker Justin Draper, of Right at Home Realty loves every minute of this chaos. With his incredible levels of energy and a wealth of experience to draw upon, these conditions all play to his strengths. Justin notes two common themes among sellers. He says…..
In a hot sellers’ market, everyone wants more than the last sale
Consistently in this market the next potential sellers on the street feel the need to receive the same price or more than each previous sale.
The spill-over effect
Once a property establishes a new record high selling price for a neighborhood, it won’t be long before another home listing pops up on the same street.
The effect begins when the neighbors first notice a sale sign going up on their street and curiosity starts to kick in. Some, especially those who in the past have previously contemplated putting their own home up for sale, watch very closely and sometimes will even book a viewing to compare their own home.
Once the property sells firm, they quickly discover the record high selling price, and this triggers a thought process of “we should list immediately as our house is now worth this much!”
The other factor to this spill-over effect involves buyers that express interest in the first house but are not initially prepared to go into competition or act at the speed the market demands. They believe that by waiting it out, they may be able to get the property for a lower price.
In a market this hot, by holding back they are soon to discover the property has been sold to someone else at a price well above asking. This loss is generally disappointing or frustrating for buyers but also serves as a wake- up call to the realities of this blazing hot market.
And when the next property on the street hits the market soon after, these extra motivated buyers are usually the first people in the door and ready to buy for fear of missing out a second time around.
The last word
This type of real estate market activity is unsustainable – it is simply too good! My own view though is that this is not a bubble which will burst and result in a crash. I think the fundamentals are in place for continued price appreciation for home values in and around the GTA. But not at the blistering rate of change we are currently seeing.