Things have felt a little upside down lately! I get it! Many buyers are asking “when can we just catch a break?” If you wanted to buy in 2022 but refused to compete in the world of subject-free multiple offers, you’re now stuck with the dilemma of high interest rates. Here’s how interest rates are impacting the market…
Loss of Purchasing Power
Over the past six months the average buyer has lost roughly 20% of their purchasing power, meanwhile, the cost of basic necessities have also gone up due to inflation. The challenge is that real estate prices have generally not dropped by 20% (yet). This really depends on the specific community and product you’re looking at.
Delay in Price Corrections
One of the challenges with market corrections is that there is a lag time from when interest rate hikes take effect to when they impact the market. This is primarily due to fact that banks hold fixed rates for 90 days but also because many buyers were former sellers who have benefited from a relatively favourable market 30 to 60 days prior.
Disparity in Listed vs Sold Prices
So where does that leave us? Based on what I’m seeing right now, the volume of transactions are down, prices are steadily declining, and many sellers are still firm on their asking price. Simply put, if they don’t need to sell, they are more than happy to ride it out. This has led to relatively longer days on market and a distorted view of the market based on what is active vs sold . If you look at what is listed vs what has sold, there’s a pretty strong spread in the numbers.
Conclusion
There will ALWAYS be buyers and sellers, and sexy product always sells! Sellers need to come to terms with what it will take to sell their home and buyers can enjoy taking their time in this balanced market. A balanced market is quite enjoyable for many people – especially seasoned buyers and sellers who are familiar with the ebbs and flows of real estate.
You have to remember, real estate is a dual purpose. It’s your home and your asset. Enjoy it for the medium to long term until it no longer meets your needs and then PREPARE your next move in advance. Chasing the market is never fun and sellers do this very often with delayed price reductions. In a downward market such as this, seller’s need to be proactive, not reactive, with their pricing and buyers can take their time and shop with ease.
Vancouver is one of the most resilient real estate markets. Now is potentially a great time for buyers to purchase at a variable rate and ride the wave with the long-term foresight that prices will eventually increase, and rates will eventually decrease. Word of caution to buyers – don’t overleverage yourself, give yourself a cushion, and know that it might get worse before it gets better!