Real Estate Talk

Contributed by: Jay Lough Hayes, Sales Representative Peterborough Realty Inc. 705-772-1025

BIDDING WARS

Will I Every Be Able To Afford To Buy?

Facebook thread:

“This is hwy robbery! I had a realtor tell me to move up north when I commented on the prices. Our children and grandchildren are moving away because prices are ridiculous. I tore a strip off him. Did you see the post from one asshat in Oshawa? Bragging on FB sold a house 50k over asking. Only had one offer, bet the people who purchased it would love to know that.” “I hear ya. I am stuck in the middle of this mess. Single father trying to secure a place locally so I can continue to raise my kids (and see them regularly) in the town I was born and raised in. Losing out when I am bidding well over asking w /no conditions. Heck last one was a wartime 4 bed home w barely a basement and it went for over $500,000. My guess will turn it into a rental and rent it out for a crazy amount. So tired of it – being forced to spend 10s of thousands over asking to even have a chance. I have pretty much given up in my hometown as it is just out of control and it really is no better around the other counties.” “We have to move your way. They have made it too bloody expensive to buy anything in Durham. Even Bowmanville and Newcastle have million dollar listings.”

So, when was the last time you worked for 1 or 2 weeks at a job you’re very good at and with zero pay cheque at the end? That is exactly what far too many real estates agents are witnessing over the past months. Not just here in Peterborough but in too many locations. A friend of mine in Charlotte North Carolina is experiencing the same difficulty. Trying to guesstimate what the lucky number will be in the real estate bidding wars.

What’s happening? Real estate agents have a home to list. Today’s trend is to underprice the listing, hold offers for 5-10 days and wait for the buyers to set the selling price. With anywhere between 5-50 offers coming in on one house, the “Your guess is as good as mine” adage truly applies.

It’s like the Miss America pageant. Your offer must be flawless. Every bank pre-approved contestant must have an all cash offer, a huge deposit, the seller’s ideal closing date, purchase without a home inspection, and guess at the most likely end price without any idea whether their offer is the lucky winner.

The average price of homes sold in January 2021 was a record $626,414

What a terrible waste of time for both the realtors and all those buyers. Obviously if there are 16 offers on a property, 15 realtors aren’t getting paid and 15 buyers are not buying a house. Of course, the real estate agent looks like a hero selling a property for $100 +- over asking when the asking was ridiculous in the first place.

Pricing a property isn’t rocket science but today, with a shortage of properties to purchase and the government trying to boost the economy with record low interest rates, no one can even guess what a buyer is willing to pay for their next home or investment property.

The banks lending the money, send their appraiser to physically view the home to ensure the property is worth what that bank is about to lend on. If the appraisal comes up short, the buyer can either walk away from the deal, renegotiate the deal or put more money down to meet what the bank is lending. Today, it seems no offer is turned away by the banks.

In some markets, when the buyer REALLY wants that house, they have been seen to offer the usual over asking price BUT then throw in 2 front row season tickets for the Blue Jays season plus an additional $10,000 towards the sellers next home furnishings. One couple even offered an unusual pedigree of dog???

I’ve seen this runaway market before. In 1990 the housing bubble burst, (mortgage rates were 12.5%) we all watched the tap shut off and homes purchased 1 day, were not worth the purchase price a month later. That market fell and seemingly bottomed out in 1997 (Mortgage rates were 7.05%). Buyers who could not enter the housing market previously, were then able to afford their first home and for some, second and investment properties. Since then, the market has been on a steady incline until 2018 (mortgage rates were 3.95%) when things levelled off.

That hiccup was short lived. Now, 2020, the unexpected Covid-19 hit. Working from home, Torontonians who were content to live in a small condo downtown, realized they could sell said condo or house for a great profit and move to the country. Many found their way to points east of Durham only to purchase their next home for half of what they just sold for, giving little thought to asking prices. Oh, by the way, Toronto real estate prices have increased 133% faster than New York City, 33.7% faster than LA, 45.3% faster the San Fran and 61% faster than Seattle.

According to Better Dwelling, a housing analytical platform, Toronto real estate prices have increased 239% as of March 2019 compared to 2000. Montreal had an approximate 189% increase, Vancouver increased by about 315.6%

In Peterborough, the average price of homes sold in January 2021 was a record $626,414, a large increase of 30.9% from January 2020.

So you bought a house for that $600,000, minus your 10% down payment, today your mortgage rate is 1.4% and your 5 year locked in mortgage will cost you $2,259.77. If rates go up to say 4%, that same mortgage will cost you $3,008.

Now, let’s get crazy and horrified at the same time. If the mortgage rates increases to 14% which is what myself and many others remember paying in 1988, that mortgage will cost you $6,714.57. Yikes! (faint)

Besides Covid 19, what else causes housing prices to escalate?

• A large influx of immigrants, whether they come from out of the country or within the country needing housing

• Canadians owning more than one house, speculatively investing in properties (buying a property as an investment, waiting for its price to increase, then selling it off which runs up prices)

• Foreign or vacant home investment, as well as a lack of supply to meet the demand.

Whether Canadians are opting to own a property or rent an apartment, there is a severe lack of affordable options for people looking for a home. With many house listings as high as a million dollars, people are struggling more now than ever before – particularly among the millennial demographic. Affordable housing is not always affordable to everyone (or even most), so when you hear the government is helping a developer to build affordable housing, ask ‘for whom’?

These real estate stats lead to higher rates of homelessness or forces people to live much further away from work, (refer to the facebook thread) leading to problems like urban sprawl which slows down traffic and puts too much stress on public transit. And don’t even get me started on today’s lumber prices if building a home is in your future. We met a couple from Holland where housing is terribly expensive. They explained that it often takes 2 generations to pay off their mortgage.

Are Canadians headed in that direction?