It’s hard to be Greedy when others are fearful.
January 2, 2023
If you are a high income earner that wants to move into a bigger home, this is a once in a lifetime opportunity for Toronto residents.
Now is the best time to upsize your home in a down market. That may sound counterintuitive but here is why the wise time to upsize is in today’s cooler real estate market.
Most people will tell you that this is not the right time to buy but most people are terrible at market timing. There is a lot of truth to an old saying “be “fearful when others are greedy, and greedy when others are fearful”. In a world where the media is always scaring you and where money is no longer cheap, it is a lot easier said than done.
We must acknowledge that higher interest rates make it harder to qualify for a mortgage. This has reduced how much home buyers can get from the banks by as much as 20%, and pushed many home buyers out of the market.
But home prices have also come down. The lower price you pay to buy the home today make up for the higher mortgage payments. It is better to pay a lower price for a home than have a low interest on your mortgage.
We realized this when we answered the following questions.
- Will high levels of immigration continue in Canada? Yes
- Will immigrants continue to move to the GTA as their preferred location to settle? Yes
- Do you think government will reduce red tape and make it much easier for developers to build lots of homes? Very unlikely
- Will technological and innovation lead to less inflation in the long run? Very likely
- Do you think the Bank of Canada will continue to raise interest rates from where they are today? Probably not
The answer to these questions made us realize that prices are likely to rebound in Toronto a lot sooner than most people think.
Detached homes in Toronto are down approximately 20% from their peak, but condos are only down 10%.
Some people are afraid to sell low. But the truth is that if you sell low, but buy a higher value property at an even bigger discount, it makes a lot of sense. The perfect time to do that is now!
If you own a condo, it may have sold for $750,000 in early 2022 but today it sells for $675,000, a $75,000 decline. If you buy a house that would have sold for $2 Million in early 2022, you would be able to buy that same home for $1.6 Million today.
The mistake most people make is to wait for home prices to go back up before they sell and upsize. But this is only psychological. If you accept the 75K price decline you can take advantage of a 400K price discount when you upsize now! If you wait for condo prices to go back up, detached home prices will also rise and the opportunity to get ahead will no longer exist. By buying today, you will get ahead $375K.
Your mortgage payments on a $2 Million dollar home in early 2022 would have been approximately $6K. Today that same home when purchased for $1.6 Million, would cost you approximately $7K/ month.
You may think it does not make sense to buy now because you have to make a higher mortgage payment. Keep in mind, mortgage rates are always changing. The bank of Canada has already hinted that they are likely not to raise interest rates any more.
There is as much chance that rates will be lower next year than they will be higher. The trend for mortgage rates is downward because society has been able to reduce inflation through innovation. When rates stabilize again prices will start to go back up. Rates have started to stabilize. You can get a discount on the house price today, while taking on a short term rate that you can renew at a lower rate later. By doing this, you will get ahead!
In summary the most ideal candidate to take advantage of the current times is
- a high income earner and
- people who want to upsize to a bigger home
So in summary, this is why this is the best time for you to upsize if you are one of the lucky few with high income.
With a higher salary, you can qualify for a mortgage when many others cannot.
With a lot of buyers out of the market, you’ll have less competition. When faced with more desperate sellers you’ll find you can negotiate large discounts. The discounts we are seeing in Toronto are a once in a life time opportunity.
If you can get a detached home for 20% discount but sell your condo for only a 10% discount, you are getting ahead.
Everyone is afraid today. Can you be greedy when others are fearful?
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