Knowing when to buy or sell not so clear cut any more
Kelvin Browne, National Post
This is an uneasy time for residential real estate. If you’re selling, you wish you’d sold six months ago; that is if you had a choice. If you’re buying, you worry it’s not the bottom but rather the middle of a price slide that’s only begun. For most, we don’t have to buy or sell this month, and that’s a relief. However, there are degrees of angst.
I’m part of the club that was feeling good about the gains a condo I’d purchased 18 months ago had made. I suspect these paper profits will soon evaporate. I worry what happens when all those new towers with units to sell go on the market. Oversupply of new units isn’t going to make my place more attractive. And speaking of oversupply, what about all those people who can just afford their mortgage? What happens if they lose their jobs and are forced to sell?
(And are these the fears — regardless of the facts — that drive markets down.)
If you can’t stay out of the market, selling and buying simultaneously isn’t quite as painful, that is if you feel you’ve done well with both transactions. Or so realtors say. However, what if you retire this week and want to cash out or trade down? Stall or sell immediately before the situation gets worse? I’ve heard both from sage real estate advisors.
Those who have bought a condo and were holding on to their house or current condo until the last minute face an awkward situation. Since their new condo was purchased at a fixed price that didn’t need to be fully paid until they took possession, and real estate was sky-rocketing, a last-minute sale of their current property was the smart approach. The logic isn’t so clear any more. I know a couple who had calculated when they moved from their house to a condo they’d have enough left over for a place in Florida. Their sunny retirement destination is fast becoming a mobile home, not a house.
When do you blink and sell? What about those in the midst of protracted renos who planned to sell their existing houses when the renos were complete? Now they’re bleeding from the reno of a depreciating property, as their house sags in value. Ouch.
There’s a whole class of real estate that’s not connected geographically but by those who own it — people in the financial industry. Many of the flashiest houses in Rosedale and Forest Hill are the spoils of the acumen and/or luck in finance, be it junk bonds, hedge funds, investment banking or whatever. Despite the gigantic payouts when times are good, it doesn’t mean that every master of the universe banker owns his or her house. It more likely means, at least for the younger ones, they could make a million-dollar down payment and afford to carry a stupendous mortgage. (As well as pay for kids in private school, the cottage, trips with ostentatious friends, artwork and so on.) Without the huge bonuses of good times or, we’re sounding bleak here, a job, these houses get liquidated fast.
One person’s real estate misfortune is another’s gain. For months, the theme at the dinner tables of the well-heeled hasn’t been the agonizing decision of should it be eight or 10 burners on the new stove but whether now was the time to buy property in the U. S. While most of foreclosure land isn’t what elite Canadians covet, there are wonderful properties in Florida, Arizona and, most especially, California, that have plummeted, too. Combine a house in Beverly Hills worth 30% or 40% less than it was two years ago with the increase in the Canadian dollar relative to the U. S. over the same period (until recently) and nice, warm places like these are within reach. Of course, you have to have your own financing, if not cash, to acquire them. And for places like Florida, there are property and inheritance tax implications to study, but these were hardly insurmountable obstacles.
Last week, the discussion around these dinner tables was different. There was worry U. S. real estate hadn’t hit bottom yet. (Or what bottom exactly meant.) A demonstration by the TSE that blue chip investments weren’t invincible was one of several signals this may not be the time to own a second or third property.
The most unsettling news was that even the best properties, their properties in Toronto, had declined in value. How’s this possible? Now rich and poor (I mean middle class), are all cautious as they contemplate their next move.
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