24 March 2023

No, this isn’t just another clickbait headline, or worse yet, a greasy realtor trick to get more sales - it’s the all-too-overlooked truth!

Something that I constantly hear when the market is hot is, “yeah, it’s a great time to sell, but a bad time to buy, so I may as well stay put.”  And now that the market has dipped, I hear the opposite, “great time to buy, but bad time to sell!”  

Clearly you can’t have it both ways though, so it leaves homeowners feeling confused.  When do I actually buy and sell then??  “If I sell when prices are high, then I have to pay a lot for my next purchase, and if I buy when prices are low, then I will get a lot less when selling my home.”

Well let me lay it out for you, and I’ll start by saying this: for most homeowners still climbing the proverbial “property ladder,” it’s actually a stellar time to sell right now (in a down market).

How can selling your home when it’s worth less be advantageous you ask?

It’s really a simple matter of mathematics to be honest.  When the market is down, it refers to a state where the value of homes have recently plummeted.  In our case, the majority of homes in the Guelph/Centre Wellington/Kitchener-Waterloo area have dipped about 20% in value over the past year.  Some more, some less.  For simplicity, let’s assume all homes have dropped 20%.

Now what I feel most homeowners overlook when making the general statement, “good time to buy, but bad time to sell,” is that you’re buying and selling in the SAME market!  Therefore, whatever percentage hit you’re taking on the sell, you can expect to save on the buy.  So the question I always remind my clients is this: “what are you planning to buy after you sell?”  The reality is, most homeowners are in the quest of climbing up to the next step on the ladder vs looking for less home.

This brings us back to the math!  When upsizing into a larger home in the same city, in the same market conditions, your budget will surely be significantly higher for such a purchase.  

Let’s assume, the home you planned to sell was worth $1,000,000 before this 20% dip and thanks to a couple of promotions over the years and being frugal with your spending, you’ve recently been pre-approved for a $1,500,000 purchase.  Seeing your $1,000,000 home drop to $800,000 can understandably feel pretty devastating and make you instantly jump to the conclusion that it’s a bad time to sell.  Why screw myself out of $200,000??!!

Here’s why: because you will save more on the buy than you lose on the sell.  

While a 20% downside on your sale leads to a $200,000 loss, a 20% discount on your $1,500,000 purchase turns into a $300,000 savings on the buy side.  This ultimately equates to a net gain of $100,000 overall.  Not only are you able to save $100,000 overall by upsizing in a down market in this scenario, but you are also more likely to have greater inventory to choose from when purchasing, as well as the ability to have conditions in your offer, such as financing, inspection, and sale of property, which are far more risky conditions to forego when money is tighter in your early-to-mid years of homeownership.

So let me repeat this one more time:  SELLING YOUR HOME IN A DOWN MARKET IS (GENERALLY SPEAKING) ADVANTAGEOUS WHEN YOU ARE UPSIZING!!

The flip side of this equation is also true.  When the market is hot, it’s a great time to sell if you are downsizing.  Why?  Because although the $800,000 condo you plan to buy may now cost $960,000, your $1,600,000 home is now worth $1,920,000.  Who wouldn’t pay $160,000 more on their purchase to be able to sell for $320,000 more on their sale?  Again, in this situation, a $160,000 net gain was achieved by choosing to sell in a hot market.  And for everyone saying, “yeah, but trying to buy in a hot market is super competitive, you can’t even have any conditions in your offer!  Well guess who owns their home outright or at least has enough equity in their home to not need a financing condition when purchasing?  Down-sizers!  Guess who has enough savings to handle an expensive surprise by foregoing a home inspection??  You got it…DOWN-SIZERS!

If you’re neither upsizing nor downsizing because you’re a first-time homebuyer or an investor, then the path is pretty clear, try to buy in a down market, however, if the market has no sign of dipping soon, you’re better off getting in sooner rather than later.  I saw this happen to countless clients who kept waiting for the dip, and although they finally got that 20% dip they were hoping for, they watched the market go up 65% while waiting.  That’s a net loss of 45% by waiting for the dip.  So keep in mind the classic real estate saying, “time in market is more important than timing the market”  Trying to time the market perfectly is near impossible and can cost you a lot of money in the process.

As a current homeowner though, you can see that there is a now a general rule of thumb on how to buy and sell real estate in a down market vs when the market is hot.  Ask yourself, “what am I planning to purchase?.”  “Is it more expensive or less expensive?”

Upsize to a more expensive home in a down market and downsize to a less expensive home in a hot market.  It makes sense both in terms of net monetary benefit, as well as risk tolerance for due diligence in your offer.

Of course every situation isn’t that simple, nor is the real estate market itself.  As realtors who live and breath market statistics, it’s our job to not only analyze the state of the overall market, but to break down the performance of different price points (under 500k,  500-750k, 750k-$1M, $1-2M, $2M+), products types (condos, towns/semis, & detached), and categories of properties (condo vs freehold, single family vs investment, etc.) to find opportunities for clients in between the cracks of any given market.

This is one reason why those hard-headed, do-it-yourself buyers are unknowingly at an unfair disadvantage by choosing not to work with a realtor.  They may read some articles and have public access to realtor.ca like everyone else, but rest assured, they aren’t as in-tune and educated as a professional who spends 8+ hours a day on the topic.  A great realtor will help a homeowner move from one property type to another at the most advantageous time and in the most profitable way.

It’s also why working with a local realtor is so very important.  Not only can various geographical real estate markets operate very differently at the same point in time, but different segments within the same city or region can too!  One example of this within the same city/region is the Kitchener condo market.  We have seen detached, townhouses/semis, and condos within Wellington & Waterloo Region all enjoy steady monthly appreciation in 2023 with the sole exception of Kitchener condos.  Therefore, while the general headlines may read that these markets are noticing property values consistently rising in 2023, the local agent is well aware that oversupply within the Kitchener condo market, mainly due to the release of numerous pre-construction condo projects, has led this specific segment in this specific city to see property depreciation, while everything else is appreciating!

Another example we often see is that condos could be flying off of the shelf in Guelph while they’re sitting stagnant in the GTA.  Guelph has very few condo releases, where as Toronto, much like Kitchener, will have a far greater supply of new condo developments.  When these developments are released in close succession of one another when buyer demand is low, it can lead to over-saturation of that particular property type, putting downward pressure on prices.  So your GTA-based realtor-friend might be telling you that it’s a bad time to sell your condo right now without even realizing that Guelph’s detached home sales are actually what’s hurting, while condo sales remain in demand.  This was an exact market dynamic we noticed during a period of time in 2022.  In that case, you could have missed out on the perfect opportunity to upsize from your Guelph condo into a detached home depending on where you were getting your information from!

And don’t get me wrong, a single realtor can be a “local pro” at serving many more cities than just the one that they reside in.  I personally consider myself very well equipped to help my clients in a reasonably wide geographical area.  As long as your realtor has paid for access to the local MLS database where the property is located and has taken the time to familiarize themselves with that particular city, they can certainly assist you extremely well.  That being said, every realtor needs to draw an honest line somewhere where they begin to refer business out.  Always make sure that you’re working with a realtor who can actually benefit your real estate experience.  No realtor-friend or realtor-family-member should be automatically entitled to your business, but an honest and knowledgable realtor working in your sole best interests, not simply chasing an easy cheque, is certainly worth their weight in gold.  So choose wisely!  Not to mention, as a buyer, using a realtor is completely free!!

Local real estate aside, don’t forget why you read this blog in the first place…the suspiciously misleading headline, “Selling in a Down Market Can Be a Good Thing.” Was it suspiciously clickbait?  Maybe.  Was it ultimately misleading?  Not at all.  The general truth remains: down markets can actually be a great time to sell and hot markets can certainly be a great time to buy.  Always ask yourself, “what am I selling and what am I planning to buy?”  

Of course, higher interest rates do add an extra curveball to the playing field at the moment.  That said, don’t forget that you are not married to your interest rate, you do however only get one chance to buy and sell at a certain price.  My recommendation, especially for first-timers and investors trying to capitalize on lower prices in a high interest rate environment, is to buy low while you can and only lock in for a short-term (1-2 year) fixed or variable rate mortgage, depending on your lender’s offerings.  Deal with higher payments in the short term, renew at the end of your mortgage term at a lower interest rate when inflation is back under control to drop your payments, and enjoy a healthy amount of appreciation when prices fully bounce back.  The potential for significant short-term property appreciation far outweighs the additional short-term interest costs.  We can’t expect interest rates to come back down to record lows again any time this decade anyways.  Waiting to buy when prices return to higher levels, but at a lower interest rate will actually not change your monthly payments all that much due to the higher purchase price.  It will, however, drastically increase your timeline for achieving the same level of property appreciation since you bought after prices bounced back!

Nonetheless, this blog should still serve as a great general starting point to planning the timing of your next move!  If moving is in your 12-month horizon, drop me a line and we’ll plan each step together to help you reach your real estate goals on time and on budget!!

Jonathan Melichercik

REALTOR®

226.314.1600

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