Spring Market Forecast

It’s too early to determine exactly what will happen when the spring market arrives in March, but early signs indicate that it will likely be a strong one. There weren’t a lot of new homes that came on the market in January, which is typical for this time of year, but the good homes that were well priced tended to sell quickly and for very good prices. This suggests that there remains a great deal of demand for the limited supply of homes that exists in central Toronto. More buyers than seller means that prices should maintain there current levels at the least and might even rise.

Do computers sell homes?

True story: When my friend asked her husband why he wasn’t returning his emails, he said “Because I’m not going to get caught up in that fad.” Funny? Yes, but also very telling. Whether email is a fad or not isn’t the point. The point is that he’s not using email because he doesn’t find it useful. Technology can be a wonderful tool, but the real question is whether it adds value.

This is as true in business as it is in our personal lives. Take the real estate business, for example (surprise, surprise). Great strides have been made to disseminate information via the internet in order to bring the market to our front doors, so to speak. Most of these innovations have created very helpful information sources if you’re thinking of buying or selling or if you’re an agent. That said, residential real estate has always been more of a people business than an information business.

Don’t get me wrong. From my perspective as an agent, I’m very pleased that real estate information has become more easily accessible to the public because this saves me time and allows me to spend more time doing one of the things which I most enjoy: analyzing this information in the context of my clients’ needs and desires to help them achieve the best results possible. While many people have access to the same information, how that information is used can make a huge difference to your result. In my opinion, this is where a good agent truly adds tremendous value.

For example, let’s say you’re looking for a home in a certain price range. On the one hand, you could find out from an online source or from an ordinary agent that there are currently 7 homes on the market that you might like. This information is marginally useful. On the other hand, if you speak to a proficient and knowledgeable agent, you could find out that none of the 7 homes fit the bill, but there are other homes that aren’t listed yet that would seem to meet your needs perfectly. Because you’ve received better advice based on the same information, you’re able to choose between buying one of the 7 homes that are for sale or waiting for a more perfect home and avoiding the expensive mistake of buying a home today that you’ll regret buying 3 months from now. This example shows that having information is one thing, but using it to your full advantage is quite another.

It’s very important to keep this in mind as we move into the future and you’re inundated with more and more information. There will be companies and agents who will try to convince you to hire them because they have all the latest “toys”. Toys are nice, but their effectiveness depends on who is playing with them. Agent A could place your home for sale on fifty different websites, but if he doesn’t have the experience and knowledge to know what the potential buyers for your home want and where they’re looking, this doesn’t really add any value. You’d be better off having Agent B place your home for sale on the one website that potential buyers for your home visit and having the features that appeal most to these buyers properly highlighted. In this case, Agent B would be combining her knowledge and experience with technology to help you achieve your goal. Her pre-listing presentation might not have been as glitzy as that of Agent A, but her result is better and, at the end of the day, it’s the result that matters.

At the same time that it’s important to keep the limitations of technology in mind, it’s also important to take advantage of its many benefits. As we start 2011, I’m pleased to be able to communicate with you via email, twitter, my blog, Facebook, LinkedIn and my talking business card. This technology is great for staying in touch and sharing useful real estate information so I’ll be tweeting about things that I think might interest you and blogging about subjects that require deeper explanations. (Go to www.michaelmeltzer.ca to check these out.) As noted, technology does not replace personal contact in a people business. That’s why I’ve decided that I’m going to spend more time communicating face to face or over the phone. (I even considered going back to my rotary phone, but ruled it out when I realized that I wouldn’t be able to use it to access my voicemail.)

Have a great 2011 and I look forward to speaking to you!

Technology & Real Estate

There’s no question that technology is a fabulous tool to use in real estate and that improvements are being made all the time. In fact, it wouldn’t be a stretch to say that technology has changed how people buy and sell homes over the past 10 years and will probably instigate even bigger changes in the future. However, it’s always important to remember that real estate is a people business. Technology is good for disseminating and collecting information, but real estate also involves people’s emotions and requires the ability to look at data and analyze it in a way that takes people’s wants and needs into account. Last I checked, there’s no technology that can do this. So when you’re thinking of buying or selling, remember that while it’s important for your agent to be up to date with the latest USEFUL technology, it’s even more important for your agent to have excellent people, negotiating and analytical skills. There’s no sense hiring techno-geek as your agent, because, until machines can buy and sell homes, your agent will need to interact with other humans.

Can You Believe What You Read?

It’s time for a reality check. For the past 13 years, there have been reports in the media that the real estate market is due for a correction or is about to slow down or that the bubble is about to burst. As far as I can remember, this prediction has come true exactly once in central Toronto; prices did decline by approximately 10% in late 2008/early 2009 when the entire economy slowed down. Incidentally, the market rebounded quickly and prices are now higher than they were prior to this decline.

I don’t know about you, but when I read these doom and gloom headlines I get the impression that they’re suggesting a complete collapse or something very close to it. However, when you look beyond the headlines that sell the newspapers and magazines (and, indirectly, the products being advertised therein), you see that this is not the case at all. In many cases, the story behind the headline is that real estate prices might remain the same or decline slightly over the next few years. Bold and brazen headlines attract attention, but they can also detract from or misrepresent the true story. [Note: major shifts in the economy as a whole and in the real estate market have historically arisen due to circumstances which were unforeseen by most experts. While always possible, most experts feel that they’re unlikely to occur at this time because of the fundamental strength of our economy and our real estate market.]

If these predictions do in fact come true and prices do decline slightly, how exactly will this affect you and will it be as big a deal as some are making it out to be?

First, keep in mind that most predictions deal with the country as a whole and not with individual markets. The market in Toronto might remain strong while the market in Vancouver stagnates or vice versa and, more particularly, the market in central Toronto might remain strong while the outlying areas stagnate or vice versa. Second, many of these predictions involve possible price decreases of only a few percentage points and not the drastic price reductions that have occurred south of the border. To their credit, this point has been made by the writers of most of these articles.

To get a better idea of how much (or little) you should be concerned if these predictions come true, let’s look at several examples of how a price decrease might play out in real life. Assume a hypothetical decrease in price of 5% over the next few years (which is actually larger than the possible decrease which is being predicted in most cases).

If you’re thinking of buying a larger home, you should welcome any price decrease because it will reduce the spread between your existing home and your new home. How does this work? Say your existing home is worth $750,000 and your new home is worth $1,400,000. You will have to pay an additional $650,000 for your new home. If prices decline by 5%, your existing home will be worth $712,500, your new home will be worth $1,330,000 and the spread, or difference, between the two will be $617,500, resulting in a savings to you of $32,500. As long as you’ve been paying down your mortgage and have enough equity in your home to make the move, from a purely financial point of view, the decline in prices will have worked in your favour. However, you still have to decide if it’s worth the risk waiting for prices to decline and if you’re willing to continue living where you’re living for a few years in the hope of saving $32,500.

On the other hand, if you’re thinking of scaling down to a $750,000 home from your $1,400,000 home, the same decline in prices will result in you putting $32,500 less in the bank after you sell. In this case, you should ask yourself if you’re willing to accelerate your plans and move now on the chance that prices may decline, in which case you might receive an extra $32,500.

Should you be thinking of selling your $1,400,000 home in central Toronto in the next few years and moving out of the city or renting, then you’ll have to determine if you prefer to accelerate your plans and sell your home now for $1,400,000 or wait a few years and move when it’s convenient, realizing that the price might decline by $70,000 during that period.

Lastly, if you’re considering buying your first home for $750,000, you should be asking yourself if you’d prefer to continue renting on the chance that you might be able to buy the same home for $712,500 in a few years if prices decline or if you’re ready to become a homeowner now. Apart from the lifestyle decision, you should also think about how you view your home from an investment point of view. Are you concerned about its value from year to year, or is it a long term investment the value of which will fluctuate over time, but increase over the long term? Finally, given the limited supply of homes in central Toronto, you should also consider that it will likely take you some time to find a home so you might want to start looking now and see where the market goes.

Basically, it’s a question of risk and reward since prices may move up or down by any amount at any time. In its simplest form, the analysis boils down to two questions: First, is the extra amount of money that you may earn or save if prices decline worth the inconvenience of postponing or accelerating your move? Second, is it worth taking this risk because if prices increase instead of decline you’ll lose money? Personally, I believe that the demand for homes in central Toronto is still stronger than supply so prices are unlikely to move downwards significantly. However, if they do decline as some are predicting, remember that this potential decline is minor in nature and that, in most cases, you’re probably better off living your life as you like and not worrying about the real estate market.

But what if interest rates also rise? Won’t this dampen the market? Like everything else, there are varied opinions on this issue. I may be starting to sound like an eternal optimist, but when Katherine and I bought our first home in North Toronto in 1991, we locked in a 5 year rate of 11.75% and thought we were getting a great deal. The 5 year rate now sits at approximately 3.5%. The increases being predicted to interest rates are in the 1-2% range over the next couple years. If the 5 year rate increases by 2% over the next couple years, it will reach 5.5%. To put this into perspective, when prices started rising in central Toronto in 1997, the 5 year rate was at approximately 7.07%. Do you think that these small increases in interest rates might dampen the market?

To summarize, if things play out the way some are predicting, and it’s not a certainty in central Toronto, then there’s probably not much to worry about in most cases. The sky is not falling. Yes, homes may take a little longer to sell, buyers may be able to negotiate on price instead of participating in bidding wars, prices might decline a bit and interest rates might increase a bit. All in all, however, if this is what happens, life as we know it will go on and there won’t be any catastrophes as some headlines might suggest. So make sure you read the full articles and not just the headlines, keep enjoying life and cross “prepare for real estate catastrophe” off your to do list.

Win the Bidding War!

Last night my clients offered on a nicely renovated house in Allenby. They loved it, but so did 21 other potential buyers. That’s right. There were 22 offers! Fortunately, the sellers chose my clients’ offer over all the others and they got the home of their dreams. While luck always plays a part in these situations, so does skill because the offer has to be drafted in a way that will make it appeal to the sellers and make it easy for them to accept. How to do this? Here are a few tips, assuming these ideas fit in with your objectives: Give the sellers the closing date they want. Let the sellers keep whatever chattels and fixtures they’d like to keep. Arrange your financing and home inspection before offer date so your offer will be free of conditions. Give a healthy deposit by way of certified cheque or bank draft. And most importantly, come up with the right price, taking into account what you can afford to pay, what you think the home is worth and how much you think it will take to get the home. This is where a great, experienced agent really adds value. In fact, I’d go so far as to say that if you’re in a multiple offer situation without a great, experienced agent to guide you, you’re at a severe disadvantage because you either won’t get the home or you’ll pay way too much. Like any negotiation, you want the best possible negotiator on your side. In real estate, the best negotiator won’t cost you extra because the commission is usually paid by the seller, so why wouldn’t you have the best possible agent represent you?

Hello world!

My very first blog posting. Very exciting. I’m dedicating this blog to all those people who want to make sure they don’t make costly mistakes when buying or selling their homes and will attempt to fill it with useful tips learned from real life situations. While I specialize in homes and condos of all prices in central Toronto, these real estate tips should help you regardless of where you live. Remember, every situation is different so if you have any specific questions, don’t hesitate to contact me as I’m always happy to help!