Vancouver-relevant excerpts follow from ‘In a cooling housing market should you wait to buy and hurry up to sell?’, an article in Maclean’s 3 Feb 2012, by Erica Alini.
‘Larry Yatkowsky is a Vancouver realtor at Yatter Matters. Realtor Manny Riebeling focuses on Vancouver West and downtown areas and specializes in luxury properties and condos.’
Maclean’s: “Intuitively, a decline in house prices should benefit homeowners who want to move into a bigger house. A 10 per cent decline, for example, means a “discount” of $30,000 on a $300,000 home, but a bigger $60,000 discount on a $600,000 home. Upsizers could pocket the difference. But do these back-of-the-envelope calculations hold up to reality? Should people looking to move into a bigger home wait on the sidelines for prices to cool?”
Larry Yatkowsky in Vancouver: “Most buyer/sellers looking to upgrade to a larger home have usually completed their homework in respect of financing options and in all likelihood the move up is carefully considered prior to taking any action. Of course in a perfect world selling high and buying low is the optimum. That, however, requires perfect timing. With the view that Vancouver’s house market is dynamic the idea of waiting for what may be perceived as that perfect moment is extremely difficult and adds untold stress to life. As an example, wanting to sell high to maximize the benefit and then waiting until the low arrives doesn’t fit into the realm of a growing family where children need to be registered in a new school or daycare within the neighbourhood.”
Manny Riebeling, also in Vancouver: “Here in Vancouver, I don’t really see a big cool down because we still have a high number of new immigrants coming and a lack of land. That combination makes our real estate very desirable, so I think for 2012, prices will be stable. Based on the previous statement, if someone wants to trade up they can sell in the spring (which is usually a busier market) and buy once they have a firm purchase offer on their current home or rent for a few months and buy in winter time, when it’s usually a slow season.”
Maclean’s: “Does the opposite hold for people looking to downsize?”
Yatkowsky (Vancouver): “It’s probably safe to assume that downsizing is a function of being an “empty nester.” As such, the financial concerns differ. Most people compromise due to health or wealth; factors that are both unrelated to the market. However, as in the case of the move-up buyer, these concerns mean people may not be able to wait for that precise market moment.”
Maclean’s: “How about first-time homebuyers. Should they wait on the sidelines for prices to cool?”
Yatkowsky (Vancouver): “If history proves anything, then waiting for that perfect stainless steel granite topped home that has a high walkability factor is tantamount to watching trains pass your station. With Vancouver’s price income ratio sitting at 10, the effect of interest rates is a massive determinant in affordability. In this city, on this basis alone, any upward movement of interest rates will wipe out the buyer’s market. The sad part is that buyers are seemingly unprepared or ill-prepared to consider the alternative of an older, more basic home with laminate tops and white appliances in working order. A metaphor for the first time buyer dilemma might go something like this: You are standing in the cold and need warm boots. You only have $10 but the boots you really like are $20. The less stylish fleece-lined rubber pair are $9. You can choose to wait for the much-anticipated $10-boot sale but while you wait your feet are getting wet and cold. What should you do?”
Maclean’s: “Several analysts are particularly concerned about the condo market in Toronto and Vancouver. Should potential buyers stay away from condos and focus on single-family homes? And should sellers hurry up to offload their condo units?”
Riebeling (Vancouver): “It’s never wise to panic, it’s better to be informed, set a plan, make an informed decision. Real estate is not a gamble. Potential buyers need to buy where their life’s necessity takes them, which could be either a house or a condo. Buyers should not rush and buy just to follow a trend or a tip, buyers should buy because they need a place to live. People shouldn’t hurry and sell their condos, unless they have to, at this time in Vancouver, the condo market is quiet, but the sky is not falling. On the other hand, if people panic and put their condo on the market at the same time, they will be creating an oversupply and this will really hurt them. Remember: in real estate, people who don’t track the short-term ups and downs tend to do great over the long-run.”
Our summary of the realtors’ arguments:
1. Selling high and buying low requires “perfect timing”, so don’t bother trying.
Trying to time the market causes “untold stress”.
Issues like a “growing family”, “health or wealth”, makes attempts at timing impractical.
“Remember: in real estate, people who don’t track the short-term ups and downs tend to do great over the long-run.” [Fine, OK, if your financial plans and net-worth will allow you to tolerate a 50%+ drop in the market value of that property in the medium-term. -ed.]
2. Prices will be stable because of demand factors.
Our real estate is “desirable”, there will be “a high number of new immigrants”, and there is “a lack of land.”
3. Buyers must compromise.
If your feet are wet and cold, buy whatever boots [used, overpriced, leaky, mouldy -ed.] are available for all the money you can afford.
4. Prospective buyers should go ahead and buy.
“Buyers should buy because they need a place to live.”
“You are standing in the cold and need warm boots. …while you wait your feet are getting wet and cold. What should you do?”
5. Prospective sellers shouldn’t sell.
“If people panic and put their condo on the market at the same time, they will be creating an oversupply and this will really hurt them.”
6. Only irresponsible cowboys would disagree with our sensible and measured approach.
“Real estate is not a gamble.”
A few thoughts:
* Regarding timing the market: Yes, it can be very inconvenient to attempt to time the market, but one does not by any means have to get it “perfect” to succeed handsomely. Just because a lot of people get it wrong (especially the herd followers) doesn’t mean that prospective buyers should be nihilistic and buy used overpriced mouldy boots at first opportunity. One simply has to be a buyer in the vague vicinity of market bottoms and a seller in overheated markets (in case-in-point uber-overheated market, no-brainer). So, we strongly disagree regarding “don’t try to time the market”, and especially regarding “requires perfect timing”.
Just ask any market participant in the US. They had about a 5 year window where it was bad to buy and good to sell, and they’ve now entered a likely 5 year+ window where it’ll be manageable to buy and lousy to sell. Where’s the ‘perfection’ necessary in getting that vaguely right?
* Note the old argument for ongoing robust demand, from all the usual quarters. We now note the interesting juxtaposition with fear of oversupply from seller panic.
* The encouragement to compromise and buy, and the implication that buying is still prudent (“not gambling”) in this market, is sales talk.
[Again, we would make the point that talking about the Vancouver RE market without mentioning the possibility/probability of us being locked in a massive speculative mania in RE (as now identified by many analysts, including writers for The Economist and Maclean's itself) is overlooking the obvious and is just plain silly. Like talking about Neil Armstrong without using the word 'Moon'.]