Watching Calgary’s real estate market over the past three years has been a bit like that movie we’ve all watched at one time or another. It’s bad, it gives little hope to getting better, but you watch it anyway, in hopes that the plot improves to reward you for your patience. And you wait…
In Alberta, and specifically the Calgary market, negative forces have conspired to drive home sales down, including unemployment, higher interest rates, and strict (and punitive) mortgage approval rules. Throw in increased taxes and a generally pessimistic outlook by the public, and well, here we are.
That’s not what this post is about.
Since the market slowed in 2015, I have been asked many times, “have we reached the bottom?’ The answer is, I don’t know. The more important follow up question should be, ‘why does that matter?’ As Allen Saunders wrote in 1957, “Life is what happens to us while we are making other plans.”
I’ll explain. In 2006 and 2007, prices were rising as much as $500 per day. The challenge was finding a property you could afford, before someone else snapped it up. No one asked me when I thought the peak would be. (It was June, 2007). They just wanted to get in, and cash in on the rising prices. As we all know, it did end, with the financial crisis of 2008. They always do. Sales and prices dropped in the subsequent years, until the market steadied in 2012 and rose into 2014.
We are living in a time of disruption, where old truths may not still hold true now, or for perhaps many years. What hasn’t changed? Owning a home of any kind is still a better financial strategy than renting.
Here are 7 reasons why buying or selling is more about you than timing a market:
- Unlike the stock market, you can’t dollar cost average with real estate. That’s where you consistently buy stocks or maybe ETF’s monthly and let the market grow over time. We can’t buy a home per month. We usually need one, or perhaps a few properties within an investment portfolio. The differences are many, but some people view real estate the same way. You can’t. A home doesn’t trade daily, there are no dividends, and the price per unit is exponentially higher than shares of a company.
- Real estate is local, and it’s personal.Some communities within a local market can be active, while others struggle in tougher economic times like today. One community may experience slow sales or flat or declining prices, while another may be getting multiple offers on listings.
- You can’t live in a mutual fund.Your own circumstances dictate buying or selling decisions more than trying to time a perfect market for both, also known as a balanced market. You would have to buy at the best time, sell at the best time and/or reinvest the money for it all to work out perfectly. Not a likely scenario.
- If you are buying and selling in the same market, it’s the Delta that matters, not the price either of them sells for. That’s the difference between what you sell for and what you buy for. The home you buy may have also dropped as much or more than what you sell for.
- Mortgage rates are still historically low.I could only dream of a 3.5% mortgage when I bought my first home, at 12.5%. Rates will continue to rise this year, but not to the crazy levels told by your parents or grandparents. The larger issue is the qualifying rules. Those may evolve, as Canadian markets show signs of cooling. Toronto had a rough 2018, as did Vancouver, the main targets of the rule changes.
- If you are buying a home to live in, you will own it on average for 7-10 years.Governments change, world events happen, and economies rise and fall in increasingly frequent cycles. No one has a crystal ball, so we can only look at what you can afford, what you need, for what purpose, and perhaps for how long.
- The historic time between the bottom and top of a market (which is in the rear view mirror) is between 5-7 years. If Calgary is at or near the bottom, how long will that last, how fast will it recover, and can we count on historic data to tell us anything?
Real estate agents often say that our current market is the ‘new normal’. Whether that is pessimistic or realistic is for others to determine. What is true is that in any slower market there are opportunities, and challenges. Our role is to provide you the best advice and strategies based on our experience and current information to find those opportunities. We’re here to help.