Spring into recession realities
In February 2009, U.S. reports showed that seasonally adjusted sales of existing homes increased by 5.1% and new homes increased by 22% compared to January; the latter increase followed 7 consecutive months of decreases.
This is good news and may signal the beginning of recovery in the U.S. First-time buyers took advantage of lower prices, interest rates and tax credits (a maximum of $8,000). In Canada, the Real Estate Market is also being affected by the global recession measured, in part, by a reduction in the number of sales and by the average sale price. Recovery is expected to be some time in 2010, but this estimate is later than first announced by the Bank of Canada. No one has a “crystal ball” that predicts with certainty.
The Canadian Real Estate Association in February 2009 announced that while all provinces reported a reduction in the number of sales compared to 2008, not every province reported a price reduction. Western provinces (-5.0% to -10.6%) were hit worst but Quebec and eastern provinces (0.0% to -0.1%) reported virtually no change. Newfoundland actually reported an increase (+4.8%).
The Bank of Canada’s efforts to stimulate the economy by lowering the prime lending rate is making it easier to obtain an affordable mortgage. According to canequity, the 5 year fixed rate is around 3.95% but the variable rate is at 2.5%. Furthermore, the Home Buyers’ Plan (HBP) introduced in 1992, which allowed first time buyers to use RRSPs as a down payment on a residential property, a major factor in affordability, has been increased from $20,000 to $25,000.
Despite the lower number of sales this spring vs last spring in Montreal, the bulk of sales in a given year occur during this period and like other years, this spring is no exception. Reports from the Greater Montreal Real Estate Board disclosed that the median price of a Home (+1%), Condominium (+2%) and Plex (+3%) was up from the same time last year.
The unemployment rate (+1.4%) in Montreal this year is higher than last but consumer confidence appears healthy. This year when asked if now was a good time to buy, a greater number of consumers reported yes in March (39%) compared to February (29%). But more expensive properties may be less affordable, as buyers look to compromise. It is certain that properties are taking longer to sell and there are more expired listings in the MLS. Buyers just don’t know what price to pay in this market, while sellers are holding onto their price.
For sellers: set a realistic sale price; know the market and your competition; have a good marketing plan and reasonable budget; be prepared for a longer sale; keep negotiations going; work closely with your agent; and think like a buyer. For buyers: ask yourself why you are buying and where; shop around for a mortgage estimate before looking to buy; do not think of flipping a home if you are a conservative thinker; keep negotiations going; work closely with your agent; think like a seller.