The double sided coin: Buy or Sell?
How could a person ever know what to believe these days? You have all sides telling you it is a bad time to sell a home but maybe you should in order to maximize your losses? Or you have others saying it is a bad time to buy because our real estate market is doomed to bottom out. Interesting how many cannot make a statement that reveals there can never be 2 bad sides to a 2 sided coin. The fact is that fi it is a bad time to sell; it means it is a great time to buy. If it is a bad time to be buying, it is a great time to sell. There are no 2 ways around it.
Warren Buffett, possibly the greatest investor and money maker of all time once said “Be fearful when others are greedy. Be greedy when others are fearful.” This means do not do what everybody else does, or you will have what everybody else has… and most people are broke. Warren was known to be purchasing stocks during the great recession of 2008 as he viewed the economic troubles as a huge opportunity to acquire great stock shares at a discount. Relating back to real estate, the British Columbia Real Estate Association recently released an interesting fact they have discovered. While all economic factors in BC appear to be healthy, Economist Cameron Muir with the BCREA is pointing the finger of this declining market to be the work of the government. This is due to the new mortgage rules introduced in late June 2012.
The interesting thing about the government is they can have various effects on the housing market, either inducing a rapid increase in prices or contributing to a decline in home sales and prices with their handiwork.
Example 1- The government allows 40 year mortgage amortizations (the life of a mortgage) and gives the option of putting up to 0% down as payment for a home. This in turn created a huge demand for housing that gave nearly everyone with a pulse the ability to purchase a home, which in turn drastically inflated prices up until 2007.
Example 2- The government brings the life of a mortgage down from 30 years to 25, and tightens up the amount people can qualify for. This eliminates many people from purchasing what they want, or used to be able to afford. Accompany that into softening prices in our area and you spike the downturn of a market substantially.
Bottom line, if the government had of left mortgages at 25 life cycles to begin with, supply and demand, the basis of economics, would have kept these major fluctuations from occurring.
In the last 5 years, in 3 occurrences when the government has tightened the mortgage rules since 2008, we have seen a sharp 3 month decline in prices and sales. These 3 months has followed by a recovery or increase of sales and prices thereafter.
So what does this mean? It could mean that you have a 3 month window to purchase a home “on sale” until the market comes back. It has done it the last 3 times in a row, is it safe to say there will be a 4th?
Buddha is known for saying, “Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.” We can take away from this one thing, we know where we stand as of today, and that is in a lot better spot than 2 months ago if you are considering buying a home. If you are a wait and see type of buyer, your challenge is now that you will never know where the bottom of a market is until it has rebounded back up.
I guess you can wait and see.
Until next time,
To read Cameron Muir’s article, click here
Darin Germyn sells real estate in White Rock, Delta, Surrey and Cloverdale. Darin is a Multi-Award Winning Real Estate Professional with Macdonald Realty Ltd. in Surrey BC.
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