The uncertainty surrounding the current real estate market has left many wondering if it is in their best interest to take part in this market cycle by listing or purchasing their properties, or waiting to see what happens.
A previous red hot real estate market led to the price of home listings rise to nearly their highest levels ever. In order to try and stabilize the industry, new mortgage amortization rules were put in place by reducing the maximum amortization period from thirty years down to twenty-five years. Under the old amortization period of thirty years, buyers were able to finance their mortgages over an additional five year term versus the current twenty-five year period. It was determined that the thirty year term had provided buyers the opportunity to purchase properties that could be considered to be out of their financial reach. As well, it was believed that the change in amortization periods would also lead to lower housing prices as sellers would have to adapt to the needs of buyers and a housing market that would see forced listings as a result of homeowners carrying too much debt. Overall, the vision was to reduce selling prices, ensure buyers were not taking on too much debt and create a more stabilized housing market.
However, the results of the change has led to an unforseen market. There is an abundance of listings, housing prices have remained high and continue to rise, and the ratio of buyer to listing keeps getting smaller.
One of the key factors that has led to this current market is that while the amortization rules have shifted, housing price points are still being established through comparisons of home sales from the previous time period. An era where amortization rules and mortgage rates were in the buyers favor and housing prices were skyrocketing. Introduce the fact that sellers have not yet taken into consideration the possibility thate the maximum twenty five year term can negatively impact their ability to sell their home by further limiting the pool of potential buyers; we find ourselves in an unpredictable real estate market.
We have a surplus of listings at high prices and a shortage of willing buyers. Under normal circumstances we would find ourselves in a buyers market. However, this is not the case.
While there is talk of the Canadian real estate market imploding, experts beleive that the current market is the new status-quo. Common sense tells us that at some point something has got to give way and that the market will eventually move to favor either the buyer or the seller. However, when that happens or what will spawn this shift is still uncertain. Will housing prices drop or will buyers come to terms with the markets price points and start buying? Will amortization rules be re-adjusted or will interest rates reduce any lower?
Let me know your position on the current market and what you think will happen...