You Know Us By Now
At this point it should be pretty clear, ‘People Over Property, Always.’ means we’re not salespeople. This relational over transactional approach has served our clients well over the past few years. In spite of the reduced transaction volume that’s given us at times we’ve never compromised on it, and we don’t intend on starting.
So, here we are, the Fall of 2022. After a couple of years raising the flag about real estate market concerns we’re beginning to see opportunity again. Every month I have these questions on my calendar, ‘Who should buy right now? And who should sell right now?’ There have been many months the team has answered that, ‘most people shouldn’t’ which has affirmed our very low pressure approach, sometimes even causing us to explicitly discourage clients from real estate transactions.
Finally it seems we’re at a point where there are some scenarios where we should be a little more proactive in reaching out to folks that have been on the fence to say, ‘now may be the time, and here’s why…’
What’s Different?
Before we get into the specifics of who should buy and/or sell right now, let me first outline what’s leading us to this new approach. As you’ve undoubtedly noticed by now, most Lower Mainland real estate markets peaked in February/March of 2022, since then we’ve seen significant drops in sales prices, sales ratios, and sale volumes. For the data-driven folks among you, let me share the Langley markets’ below average changes from September 2022’s SnapStats as an example, and if it’s not your forte, then feel free to skip:
Langley Detached:
Price Change from Peak: -$445,000 / -28% ($1,773,000 to $1,328,000)
Price Change Year-Over-Year: -$52,000 / -4% ($1,380,000 to $1,328,000)
Sales Ratio Change from Peak: -88% (62% to 24%)
Sales Ratio Change Year-Over-Year: -87% (61% to 24%)
Sales Volume Change from Peak: -57% (168 to 73)
Sales Volume Change Year-Over-Year: -22% (93 to 73)
Langley Attached:
Price Change from Peak: -$141,000 / -%20 ($760,000 to $619,000)
Price Change Year-Over-Year: -$11,000 / -2% ($630,000 to $619,000)
Sales Ratio Change from Peak: -125% (100% to 23%)
Sales Ratio Change Year-Over-Year: -110% (79% to 23%)
Sales Volume Change from Peak: -66% (325 to 111)
Sales Volume Change Year-Over-Year: -53% (236 to 111)
As you can see, that’s a drop in every category, across both timelines. We’d have expected the peak-to-current to be significant, but we’re also now beginning to see the year-over-year drops. The last year’s gains have now been returned, which is one of the primary reasons our perspective is changing. The heat has exited the market and we’re now back to a more normative real estate market, with some standout opportunities in particular, which we’ll discuss below:
Who Does This Matter For?
There are two specific client-types we think this is particularly important for, those looking to upsize, and those looking to buy their first home. The last two years have been particularly challenging for both these scenarios, but with the above changes we’ve seen the tide has turned in their favour.
The Upsizer
We’ve heard plenty about ‘the downsizer’ these last few years, primarily baby boomers cashing in on the homes they raised their families in and purchasing a smaller, often luxury, townhome or condo. There have even been a few younger families that have found the maintenance of a single family home, along with the cost accompanying it, to fall outside the lifestyle they’d like to live and have chosen a more minimalist approach by downsizing.
What we’ve heard less about is ‘upsizing,’ and that’s primarily because it’s not made much sense. Particularly during the last two years when ‘space’ carried a premium, whether it be larger home, or an additional bedroom for a home office, or simply more distance from the neighbours, ‘upsizing’ was disproportionately difficult – the financial ‘spread’ was often too much.
The inverse is now occurring, with the gaps between condos and townhomes, townhomes and single family homes, and suburban homes and acreages closing significantly. Using another marketplaces as an example suggests why:
South Surrey/White Rock September 2022 Sales Ratios:
Condo’s Sales Ratio at $400-500,000 = 50%
Townhome’s Sales Ratio at $800-900,000 = 29%
Townhome’s Sales Ratio at $800-900,000 = 29%
Single Family Sales Ratio at $1.5m-1.75m = 20%
Single Family Sales Ratio at $1.5m-1.75m = 20%
Single Family Sales Ratio at $2m-2.25m = 6%
The translation this has to price should be relatively apparent. The cheaper a property is, the more demand it has (opposed to the last two years), and therefore is holding its value disproportionately to the properties priced higher.
As a result we are seeing the properties our clients would like to upsize to depreciating in price faster than the property they are looking to sell, closing the gap and making it a more achievable move.
The First-Time Buyer
Goodness gracious, working with first-time buyers in the last two years has been incredibly difficult. We’ve had to fight tooth and nail to compete against the sheer volume of capital trying to find a home, with investors often blowing first-time buyers out the water, or even just buyers who’s folks are able to contribute massive downpayments outcompeting those that saved for themselves. Subjects were pretty much unheard of, especially inspections, and knowing how to price an offer was often a data-informed shot in the dark. For some context, sales ratios were often 100% or even higher.
With those sales ratios now dropping, investors stepping to the sidelines as capital dries up, and prices having retreated to pre-mania levels the market now poses real opportunity for buyers who are ready to stop paying the equivalent of 100% interest to a landlord and to step up into their own home for the first time.
I say this with the caveat that there may still be price depreciation ahead, especially if the Bank of Canada are not able to quell inflation using increased interest rates by mid-2023, so any first-time buyer with a timeline less than 5 years should consider remaining on the sidelines, as is always our advice.
What Else Is Benefitting Anyone In The Market?
The above are the two specific scenarios that make most sense to us right now, but that doesn’t mean that there aren’t benefits to anyone in the market just now, most notably that other costs associated with a real estate transaction are also greatly reduced, as pointed out by my friend and colleague, Jackie MacDonald in a recent sales meeting at our brokerage.
Property Transfer Tax:
Calculated at 1% of the first $100,000 and 2% of the balance (for properties under $2m) the savings can add up now that you’re most likely paying around 28% less on a detached and 20% less on an attached home. See the below PTT payments as example:
$2,000,000 = $38,000
$1,750,000 = $33,000
$1,500,000 = $28,000
$1,250,000 = $23,000
$1,000,000 = $18,000
$750,000 = $12,000
$500,000 = $8,000
Real Estate Fees
Property transfer tax is usually the largest expense beyond the downpayment associated with a real estate purchase, but for a real estate sale the largest expense associated is real estate fees. These have also come down significantly, see the below utilizing a fee structure we would often use to cover both the listing and buyers agents fees.
$2,000,000 = $64,000
$1,750,000 = $56,500
$1,500,000 = $49,000
$1,250,000 = $41,500
$1,000,000 = $34,000
$750,000 = $26,500
$500,000 = $19,000
Real Estate Still Has Value
Ultimately each of us on the team believes in the ‘product’ we’re selling. Each of us is a homeowner and remains invested in the real estate market, for both lifestyle and financial reasons. Very few, if any, asset classes have performed as well as real estate over the past few years and decades. The fundamentals remain strong, demand will remain high in the Lower Mainland and Fraser Valley for the foreseeable future, and supply will remain low.
Generally the larger a property the more exposure it has had to appreciation, and this is one of the unusual periods of time where the larger properties are available essentially at a ‘discount’ compared to the rest of the market.
And That’s Why Our Advice Is Changing
The above is why our advice is changing and we’re taking a less defensive approach again. Hopefully we’ve outlined that clearly for each of you, if you have any questions about your own scenario please don’t hesitate to reach out at david@davidsmithhomes or via phone/text at 778-246-4344.