Why this might be the most important time to sell your home over the next 5 maybe even 10 years

December 8, 2022

If you plan on relying on the value of your real estate for retirement, or you’ve considered selling your home to create more financial security for yourself, waiting to see what happens to the market might cost you hundreds of thousands of dollars. A 20% price drop in your neighbourhood on average may mean upwards of $300,000 in losses. An amount of money that will take most of us a decade to save up.

The Housing Bubble of 1989

The housing bubble of 1989 was created by excess speculation and declining interest rates from 1985 to 1989. Guess what we had during the pandemic…. excess speculation and declining interest rates.
As soon as rates increased in 1989, prices began to fall. Between 1989 and 1996 the average price of a home in Toronto declined by 40%. It took nearly 13 years for prices to recover!
What’s worse is that interest rates only increased 30% in 1989. Today, interest rates have now increased by 250% in a very short amount of time. These are unprecedented changes never before experienced.

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Mortgage Rates

But this is only the beginning. The Globe and Mail recently reported that 80,000 home owners are about to hit their trigger rate over the next few rate hikes. 20% of mortgage holders will be renewing their mortgages in 2023 while they face a 21% average rise in their mortgage payments. Unfortunately, many homeowners will not be able to afford their rising mortgage payments.
This means a lot more homes are about to come on the market for sale and prices are likely to get worse. If you’ve been planning to sell and you rely on your house as a major source of your nest egg, you may not want to wait 13 years.
If you are planning to cash your chips, we believe now might be the best time over the next decade to do so Every day you wait might cost you thousands of dollars.
Higher Taxes coming?
The Toronto Star recently reported that the city of Toronto needs “$815 million to balance this year’s budget and almost $1.5 billion to fill an expected shortfall in 2023 due to decreased TTC revenues, increased spending on public health and seniors homes, and other pandemic costs”.
Unlike the federal government, the city can’t print money or go into debt. What that means is that they will likely have to increase property taxes or find alternative sources of funding.

The coming wave of layoffs

Amazon, Facebook, Shopify and many other companies have already started to lay off employees. With higher costs and slowing demand, many companies are forced to cut jobs to stay profitable. With more job losses to come there will be even further pressure on the housing market.

Inflation and the rising costs

CTV recently reported that the costs of residential construction have gone up 25%. With high inflation costs, home upkeep costs are astronomical.
Toronto is ultimately a great city that many want to live in. There are many new immigrants that come into this city and, in the very long run, prices will come back. But what most people don’t realise is that most newcomers rent for several years before they can qualify for a mortgage to buy a home. With a tough job market and higher mortgage rates, buying a home is a long way away for most newcomers.

Where are the Foreign Buyers?

China’s housing bubble has now burst and much less money has been flowing into Canada as a result. In an article by Bloomberg in October 2022, they reported that “China’s Bursting Housing Bubble Will Rock the Economy for Years.” There has been a decline in foreign home buyers and it won’t be coming back anytime soon. Additionally, Canada just announced a 2 year ban on foreign home buyers.

It’s all about Supply and Demand

The demand for buying homes is getting crushed by the 250% increase in interest rates, while the supply is likely to get a lot larger as more home owners struggle to make higher mortgage payments.

The market is actually balanced right now and prices are still good

The good news is that there is still time. We are only in the beginning, and the worst is yet to come. 50% of homes in this neighbourhood are still selling. By all standards, that is a balanced market. And overall prices are still relatively good compared to only 1 year ago.

What you can do next:

Recently TopHouse launched the most accurate automated home valuation estimate using an algorithm based on what your neighbours sold their home for. No need to talk to an agent, and no pressure! Get a quick estimate for the value of your home in under 30 seconds.
This is a completely free tool, give it a try.

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