5 Bullet Friday...Rate Drops + Picky Buyers

Welcome back Sudbury! 👋

Here are my 5 takeaways this week:



📈Listings keep climbing, despite the drop in new listings this week. New listings are continuously outpacing sales by a large margin, and that's caused the total active listings to build to where we stand today just shy of 300 homes. The explanation I continue to give to people who ask me what’s going on with the market is pretty straight forward; buyers didn’t have confidence to buy in 2023. They wanted to buy but they didn’t jump in, so all those would-be buyers sat on the sidelines. Something changed in the spring market this year where confidence shifted and buyers felt like they needed to jump in or they would miss their chance (this is the shift from fear of overpaying - or FOOP - became fear of missing out - FOMO). We had a surplus of buyers, as it was all the buyers who would typically be in the market plus all those who didn’t buy the year before, and listings were scarce. This drove bidding wars and prices. We didn’t have a lot of new buyers jump in to replace the buyers who had recently bought, so with every sale there were fewer buyers moving forward. We almost hit an intersection of smaller buyer pool at the same time more and more listings were coming on the market (fewer buyers more listings). Things are still moving and prices are still elevated, but buyers are being very picky. More on that later.  

🏡We are seeing some of the pickiest buyers we have ever seen, and all the power to them for that. One of our team mates had a listing last week that was priced low, and we know that the majority of the buyers are in that first-time-buyer price range. The agent had 90+ showings in the first few days, but on offer date, there was no offers that came forward. He repriced it at a number the sellers were happy with and he actually had 2 offers come right after that. In this case here it seems like buyers were afraid of how crazy the overpay premium would get with all this activity and the low price point; that they just opted to stay away on offer date. In reality, when the seller put a price closer to what their expectation was, there were buyers willing to jump in knowing what the seller's expectation was.  

💰There’s an article that everyone is talking about this week that Mortgage Deliqunecies in Canada have reached 1Billion. This is a massive number, but let's dig into the article a bit more to understand what’s going on. In actuality, there are fewer borrowers who are actually behind on their payments when we look at the traditional number of 90 day default borrowers. The bigger issue is the mortgage values are much bigger than they have been at any time in the past. Thats a sign that people are taking much bigger debt than they are comfortable floating. In all reality, the big banks are pretty exposed here; they have had stress tests and tighter lending regulations for the last long while. Where the pain will be felt is in secondary lenders. There are a lot more borrowers who reached out to non-traditional channels to jump in when borrowers were unable to qualify at the big banks. If these borrowers who are in the most trouble are multiple property owners (which is highly likely as they have been quick to jump into more debt), then you will see motivation to sell off their worst performing assets (typically in bigger cities, these are the shoe box condos; no one buys a 400sqft condo that doesn’t even have a bedroom to live in, these are investor condos that are listed on AIRBNB). That's the market where you will see additional supply flood the market. Locally, this may be the fix-and-flip properties in the Donovan or Flour Mill that out-of-town investors jumped into based on the low purchase price. This is the segment of the market that could get flooded by investors dumping off properties.

📉Sudbury.com published an interesting article this week that homeownership is on the decline. The numbers they referenced saw a drop from 68% ownership in 2011 to 61% in 2021. Sure, you can blame the higher cost of housing; but in reality I would point to the popularity of people looking to supplement their income from investing in real estate more so than the rise in cost of ownership. Sure, the two may be tied together, but in Canada, we look at investing for our future and we focus on real estate for that investment. A lot of employees may have some kind of pension, but when we attempt to manage our own investments, we are in a large part turning to the real estate industry. In the US, there are more success stories of small, medium and large business that people will look to invest into, or even just broad indexes that reflect the S&P500. This is why, when the economy in the US is booming, this will reflect in the stock market, compared to the economy in Canada - when it's booming, typically it's reflected in the housing market.

🤔How will the latest decrease in the variable rate (Bank of Canada) affect the housing market? I’ve had a lot of people pose this question to me in one way or another since Tiff decreased the overnight lending rate last week. This is not financial advice, as this is just my thoughts on the local market, but I don’t think there is going to be much of an affect from Tiff’s most recent move.  =The market shifted with confidence as people assumed rates were coming down. They actually assumed rates were going to come down 3 times this year, a number which seems somewhat reasonable after the Bank of Canada’s press conference last week, that tied to the US’s better than expected inflation numbers. The biggest effect the decrease (and future decrease) will have is on buyers additional line of credits, as HELOCs (home equity line of credits) are typically tied to the prime rate + a few points of interest). This will mean that buyers feel slightly less pressure financially when it comes to tackling their debt levels, but I don’t think that this quarter-point drop will have more buyers lining up to jump into the market. The quarter-point drop equals about 15$ per 100k of mortgage that a buyer has, which is basically their Tims order at the end of the week. If we see a full point drop, we could be looking at a few hundred dollar less in payments on an average home. That may be some incentive for buyers to jump into the market who have been sitting on the sidelines.  



That’s it for this week, let's connect next Friday for another Sudbury Market update!