The Correction Is On. What Should You Do?

Time Flies.

Well it’s been a month or so since my last update. Too long, I know! Kids are out of school, phone is ringing, things are busy. Is the market on fire with lots of deals happening? Not quite. There’s more people kicking at the can, finding out what their options are, and taking things slow.

My thought to those thinking about doing something: Don’t be too slow.

Why?

The correction is happening.

I’m sure some people will argue with me and tell me that the statistics don’t quite indicate a correction. Maybe you’re right. But let’s place statistics aside and think about a few things logically.

A “correction” truly only means something to someone who is actually going to make a transaction, be it a buy or a sell. Or both. If you aren’t an active participant, reading about a correction is just, well, information.

A correction for a seller means that they have to sell their property for less than what they expect or even bought it for. A correction for a buyer might indicate the time is right to make a move and purchase a property “on sale”.

Where’s my evidence of this correction?

I don’t have any deep analysis of statistics to back up my claim that the correction is on. But my team and I are in the trenches. We’re seeing evidence of it everyday. Some of our clients trying to sell a property in this market, and having trouble. Other clients are finding great deals on properties, grabbing them up for much less than what they would have expected to.

It’s these people, doing these transactions, that formulate the statistics that you read about next month.

How deep will the correction run?

Let’s think about this logically. If we’re already in a market where properties that are priced appropriately are getting grabbed up and generating multiple offers, do you really think the correction is going to run much deeper than how it’s looking now?

Of course not. We might see a 10% to a maximum of 20% dip in SOME house prices, but only those that are desperately selling will experience this correction.

Are there going to be widespread drops in housing prices of 40% or 50%? I just don’t think so. Our economy remains resilient. Many people still have a ton of equity in their homes, and they will just hold on rather than sell at a discount. Remember, we are still living in a hot-zone for real estate. Most of us still have jobs and families and will do whatever it takes to keep our home.

So for the soothsayers that predict a widespread drop in real estate, keep holding your breath. It’s not going to happen. (The people I think are predicting these crazy drops in real estate are just sour that they didn’t buy at the right time because they were waiting for something that just never happened).

So what’s the point?

The lesson is that you shouldn’t wait for statistics to make a move, and don’t hold out for any crazy correction before you purchase. You’ll be too late. You may have missed the boat on grabbing up a great deal on a property.

Don’t wait for statistical evidence of the correction to find yourself a great deal. Find yourself a great deal and help formulate next month statistics.

Here’s one main difference between very successful investors, and everyone else.

The most successful investors don’t rely (or don’t ALWAYS rely) on statistics to support an investment purchase. They make their purchases based on all the good aspects of that specific investment. When their investment goes up in value, they look like a king.

The successful investor didn’t wait for the statistics to support their purchase. They’re ahead of the statistics, and ahead of everyone who waits for those statistics to make a move.

For real estate purchases specifically, an investor will assess such points as: Does this house seem like a good purchase? Is the house “on sale”? If I were to wait and buy this house in a hot market, is it going to be more expensive? Or even available, for that matter? Is the seller desperate to get it gone? Are they willing to lower their price? Can this house rent for good money? Is my family and I going to be happy here for a long time? And so on.

The successful investor seeks out and finds a great deal on a property based on the characteristics of the property he’s purchasing. Not because statistics told him it’s a good time to buy.

Am I repeating myself?

Let’s move forward onto some other important points.

Stop thinking about the rate. Rather, think of the difference between getting a house on sale, versus saving 25 bps (basis points) on the rate.

I get these calls all the time. Folks asking me if they should wait for rates to drop before taking action.

Well, let’s go back to this little word I used before – correction. A correction means that you might be able to get a house for $900,000, whereas in a hot market, that same house might be priced at $1,100,000.

Now, I’m just pulling numbers out of the air, but I’m not far off. During the height of the market frenzy, we were seeing people making offers for $200,000, $300,000 OVER the asking prices of places, which were already inflated.

Now, the situation is reversed. We’re in a buyers market. Buyers can be more choosy. They can make lower initial offers. They can put in subjects with a reasonable time-frame.

If you wait for rates to come down, you’ll be waiting for the time when a bunch more buyers are going to flood back into our market. Also, those buyers will qualify for more money because their qualifying rate is lower. More buyers with more buying power.

What’s going to happen with more qualified buyers? Inventory levels will drop, prices with stabilize, and, our buyers market will slowly turn into a balanced market, and ultimately, back into a sellers market.

I don’t need to ask you a rhetorical question about this. I’m telling you. You’d prefer to buy in a buyers market. It’s that simple.

So, when I say don’t think about the rate, I’m rather saying, keep the bigger picture. If you can purchase a property for $100,000, $200,000 or $300,000 LESS than normal, are you going to care if you have to pay 0.25% or 0.50% MORE on your mortgage? Of course not!

The equity you create, the wealth you create for yourself on a successful real estate purchase, FAR OUTWEIGHS the savings that you might receive by waiting to make that same purchase with a lower rate.

It goes back to the old saying. Date the rate. Marry the property.

We hear these sayings often, I’m just using them in a different context.

Didn’t get the purple popsicle? I hear parents saying it all the time: “You get what you get, and you don’t get upset”.

Another saying I’ve heard and have to use (and please don’t be mad, I’m only the middleman): Beggars can’t be choosers.

What I’m trying to say, is that rates are still high, and those that are trying to get mortgages can still experience difficulty, because qualifying is hard. Even if you have a high income. So we might get a decline from one lender, and approval from another. Especially if our debt servicing ratios are outside of guidelines. Which, for many, this is the case. It’s the lending landscape these days. Basically, unless it’s a slam dunk, it’s more unpredictable.

BTW – I can tell you really quickly if it’s a slam dunk or not. More coming on this in the preapprovals blog I’m writing up.

So should you abandon your purchase and quit? No. Should you get mad and take it personally? Of course not. Should you try working with another mortgage broker or bank? Two part answer here. If you’re working with us, no. Because we are the best at what we do and we’ll get you the best deal, or any deal for the matter. If you’re working with another broker or bank, well, sure then. Give me a call and run it by me. I will probably be able to do better than them.

My message to sellers in this buyers market: Get clarity.

Sell? Don’t sell? I don’t know. Everyone is different. Everyone’s circumstances are different.

Here’s the right answer. Know your options. You might be able to keep that property as a rental. You might not. You might be able to get financing on the property you want to sell. You might not.

Get all the data before you make your move. Don’t sell because your neighbor or friend or realtor told you to. Talk to me first. I will help you assess your situation. Whether you decide to sell or not, you’ll have so much more clarity before deciding.

It’s not rocket science. Buuuuuut you shouldn’t trust these decisions to a newbie broker either (unless they’re a newbie in our office, in which case, they are very good and have me as a regular resource). I/We are experienced. I’ve seen it all, and my clients and friends are generally happy and get more clarity when they get my opinion.

And of course they’re even happier when we get them their mortgage approval at a great rate.

Here’s some final thoughts to round out this article. News on rates and inflation.

It’s been a rough few years for some, but it does look like things are on the reversal course for variable rate mortgage holders, and yes, fixed rate mortgage holders too.

Watch the insider video that I’ve included below. For your eyes only!

Were showing clear signs that some sort of recession is happening, and it’s going to drive rates down. The BoC is MOST likely going to come down again next week, further easing the stress on current variable mortgage holders. Not by much, my guess is that BoC will continue with a 25 Bps rate drop, and probably bring prime rate down to 6.70%, and the overnight rate to 4.50%

Anyways, as I’ve always said, things like this work in cycles. The rate isn’t going to stay at current levels. We can and should expect more decreases to come. As more news rolls out of the correction in the real estate market, and a looming recession in our economy, rates will continue to drop.

Side note – I get emails from experts that tout for both fixed and variable rates. My take – Why make the decision right now if you don’t have to? I talk about it in another one of my blogs, which stays relevant to today.

Read my blog on variable versus fixed, here.

I have lots more to say, but I’m going to wrap this one up.

I have a habit of coming up with lots of great content and then not getting it out in time, or at all. So even though I have more to say, I’ll just leave it at that for now. But you’ll probably hear from me next week. Sometimes this is a weekly, sometimes it’s a monthly. I’m consistently inconsistent. I like to keep you on your feet.

Signing off for now,

David Steinberg, AMP, BComm

Mortgage Psychologist and Property Strategist

(and Lead Broker and Owner at Olympic Mortgage)

250-858-7160

david@olympicmortgages.ca

Feedback is welcome. Just hit “reply” to this email and let me know your thoughts. Or pick up the phone and call me – 250-858-7160. Or text me. Whatever! I’m around.

Insider Information Video! (I pay for this)

So being in this mortgage industry, I pay a pretty substantial monthly fee to get this guy’s insider content. Rob McLister is published often in the Globe and other newspapers, and he has a significant following of brokers that pay for inside access.

Here is one of Rob’s videos that he is allowing us to share, internally. Watch, enjoy! Thanks Rob!

WHOOPS! NOT ALLOWED TO POST THIS ONE TO THE WEBSITE. YOU’LL HAVE TO SIGNUP TO THE NEWSLETTER TO ACCESS FUTURE LINKS.

Another appearance on the YYJ Real Estate Podcast!

Adrian MacLaren, Vincent Baart, and Jocelyn Cseff really know their stuff. They had me out again for their podcast. It was a great episode. Lots of laughs, lots of good information, and the team even caught me dozing off at one point. (It was a busy two days with the rate drop. Gimme a break, OK?

Thanks again for having me out! Looking forward to the next one!

Here’s the link to the Episode. Enjoy!