09 Dec Market Notes: Why are people rushing to buy?
The area of the freehold market where I am seeing the most strength continues to be the $800-$1.2m mark. This coinsides with the rush by buyers to purchase their dream home before their mortgage approval diminishes in the new year. The investment psychology behind this motivation is interesting. It is counter intuitive in the sense that people are rushing to buy property before it becomes cheaper. The thought is that while property will possibly be cheaper, it will be less affordable. The buyers who are rushing to buy today believe prices won’t correct enough in the new year to make up for their mortgage qualification shortfall later.
They may be right, but I don’t view this as prudent investing. The properties with the most demand right now are larger, finished, quality properties that show well. In other words ‘dream homes’. This corresponds with the psychology of buying today for the longterm and not worrying about where the market may go in the short-term. Previous to the non-resident tax and the announcement of new mortgage regulations, all types of properties were selling well, not just finishes homes. This was likely because there were more speculators in the market driving up prices.
Today, with higher interest rates and more regulation in the future, there are uncertainties. How much money is really being taken off the table? Will strong job growth and demand to live in downtown Toronto continue to outstrip fundamentals? I believe cities like Toronto and Vancouver will always operate in a vacuum and outperform the greater market, but I also don’t think you should be in a rush to get back on this train. If you would like to buy now, keep an eye out for opportunities and take advantage of the few motivated sellers.
-Nick, Dec. 8/2017