Buying a home is likely the biggest financial decision you'll ever make and you probably have a lot of questions before making a purchase.
We’ve been getting monthly updates from the ground floor from Realosophy Realty’s John Pasalis and Oakwyn Realty’s Steve Saretsky, who help make sense of it all, with advice for anyone buying or selling a home.
They answered your questions about government policy, mortgage rates, timing the market, and where to buy in Ontario and Western Canada, and more.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
JESSY BAINS: Let's start with questions, because we have a lot of questions. There's a lot going on in the markets. There's talk about a potential slowdown. So let's just get to it. For starters, we have Andres.
I hope I'm saying that right. "Hello, great and insightful show." Thank you. "But I still have a question. How do you account for inflation versus interest rates in your predictions in the Vancouver market? I understand the restraints generated by higher interest rates and the logic that will force prices down.
Still, in my practice--" and he's an architect-- works at an architecture firm. "Still, in my practice, we're getting quotes for the value of construction per square foot increasing over 60% compared with the previous years. Municipalities are taking ages to approve, there are shortages of materials and labor. Are we bracing for a crash or a big squeeze?" Steve, I'll let you answer this one, since you're the-- our expert on the Vancouver market.
STEVE SARETSKY: I mean, it's a really good question. I think that it really just depends on can developers or builders pass these costs onto the end user? Do they feel they can pass these on to the end user? I think as it's been over the last 12 to 18 months, they've been able to do that. I think there's a little bit more cautious or skepticism that they're going to be able to continue to pass these expensive or rising building costs through to the end user.
We're certainly seeing a pullback in demand. I think we're seeing some prices come off a little bit in the suburbs and some of those really hot frothy markets. So I think if I'm a homebuilder and developer, I'm kind of like, well, maybe I'm going to hold off a little bit, because I don't know what the demand looks like 12 months out from now. Again, like rising costs, uncertainty, the ability to complete a house on time-- these are all part of the equation that we have to kind of factor in. So do I think that we could see a pullback in say new housing starts?
I think that's possible. And so yeah, it's definitely worth bearing. But I think the big thing here is really-- yeah, inflation, rising rates, the ability to pass it on to the end users-- it's all sort of up in the air right now.
JESSY BAINS: It's interesting times indeed. OK, the next one comes to us from Neeraj. Neeraj says, "I frequently watch your discussions on "Yahoo Finance" about real estate, and let me tell you that you guys are very good at what you do." They are, indeed, very good at what they do. And I thank you, it's nice in our business to hear positive feedback like that, so thank you.
Neeraj says, "I was watching a recent video in which John Pasalis mentioned about the price rise being the product of government policy that's been trying to inflate home prices." OK, so let's have a listen to that clip. I know what he's talking about. Have a listen.
JOHN PASALIS: This rise was not an accident. I mean, these things just don't happen out of the blue. I mean, this is really a product of government policy that has been trying to inflate home prices-- pre-COVID, they were doing that, and they've leaned on it even more.
JESSY BAINS: OK, so he says, "I would call myself slightly unqualified-- or a novice when it comes to really understanding this. So can you please elaborate for me what it means in terms of government policies and the above that John Pasalis described in the video? Appreciate if you could help me understand." So John, if you could reiterate-- clarify what you mean, when you say that.
JOHN PASALIS: OK, it's a good question. I mean, it's a difficult one [INAUDIBLE] back, but I'll try to kind of give two main examples. I mean, the first is certainly our federal government is ramping up our population growth, well ahead of what it was in the Harper government and previous administrations. And they know that housing completions can't keep up, right?
And when we talk about the supply-demand imbalance, I mean, part of it is-- we know-- if you're going to ramp up your population growth by 40%-- we were growing by 350,000 people per year-- one of [INAUDIBLE] half a million.
Well, if you can't build homes fast enough, you are deliberately trying to drive home prices up. So that's kind of just one example at the federal level. But when we think what the central bank, when COVID hit, the rates fell. Tiff Macklem, Bank of Canada Governor, specifically said they're leaning on housing. You know, when people are concerned about a bubble and a year ago, the response was we'll take all the growth that we can get.
The part of the policy of driving rates down was to actually stimulate the housing market. So it's not just the federal government, the Bank of Canada has leaned on rising home prices to stimulate our economy. And this has been a trend for years. This idea that rising home prices were leaning on that as the driver of economy, and people take up money from their HELOCs, they buy stuff. And it's really one of the reasons why house prices in Canada have outpaced so many other countries, because we're really dependent on rising home prices to stimulate our economy.
JESSY BAINS: Right, and we've looked at charts on this show in the past showing how housing is overtaken in terms of the chunk of our economy-- things like research, and development, and investment, and machinery, and things like that. And it is a very complicated thing, as you mentioned, immigration. The prime minister just yesterday was saying that part of the problem is that we've had rapid immigration. But he almost kind of threw the ball back to the Court of the Municipalities to build more housing. So I guess there are a lot of cooks in the kitchen, and it's a tough nut to crack.
Neeraj has a follow-up question. Neerja asks, "I also want to know what do you foresee with regard to the house prices in the near future? Just wondering if the prices will Keep soaring or stabilize." So let's break this up.
John, I'll let you talk about your backyard-- the GTA. What do you think-- I mean, we keep hearing about a slowdown, fewer offers. But what does that look like is that a stabilization? Do they keep rising or something else entirely? What do you think?
JOHN PASALIS: I mean, it's a great question. So right now, the market is very confusing for a lot of buyers. Because you have the amazing homes still selling for crazy prices. You have some homes selling for what's market value, you think. And then you have other homes selling for $100,000 less than what they would have sold for two months ago.
So right now, the market, I'd say, is on average stabilizing. But if it continues to slow down, I mean, you might see some downward pressure on prices. I mean, no one really kind of predicted that. I certainly didn't. But no one predicted five year mortgage rates would be a 4% right now.
And I think that's potentially going to have a very big impact on people's affordability. So I suspect over the next six to nine months, we're actually going to probably see either some stability or some slight downward pressure, like we're not going to see a 30% decline. But certainly when there are fewer offers, fewer bidders, homes are going to sell for a little bit less than when there were 15 and 20 offers on homes.
JESSY BAINS: And even, as you say, we're not going to see a 30% decline. I mean, if we did get that 30% decline, we have first-time buyers sort of frothing on the sidelines waiting for their opportunity. But 30% is just going to get us back to-- not even pre-COVID levels-- like just a few months ago--
JOHN PASALIS: Yeah, 100%.
JESSY BAINS: --depending on how you look at it. Yeah, so unfortunate news for first-time buyers that continued-- long-suffering first-time buyers in this country.
Steve, what about in the Vancouver area? This has come up many times during our discussions is the way the GTA mirrors Vancouver. So do you see a similar sort of situation playing out in terms of prices? Because that's the thing that everybody wants to know about-- what's going to happen with prices?
STEVE SARETSKY: Yeah, I think we're in-- I think the markets in price discovery mode right now. I think that, like John said, there's still the occasional house you see, oh, that's a really big price, like they not realize the market's kind of shifting.
So you're still seeing some of that. And then you're seeing a lot of things where-- I would argue-- some of these detached houses in the suburbs, buyers today are probably paying $100,000-- $125,000 less than what they would have paid six to eight weeks ago. So I think there's already some price discounting, and we've seen examples.
Again, I think most of the correction that you're seeing in prices is actually in the suburban markets where most of the froth was. So we've seen examples over the last couple of weeks where if you go back to sort of the peak of the market, you know, mid-February sort of thing, you look at some of these townhouses in a complex that were maybe selling for $900,000, which were huge numbers. Places that were listed at like $799,000 going for in the $900,000's.
The same units are coming on right next door in the same complex, and they're being listed at $799,000 with no offer dates and two weeks later, they're still available. So what are they going to sell for $780,000, $785,000? So we're seeing price discounting already in parts of the really frothy market.
JESSY BAINS: Right, so question for you, Steve. When you see houses coming, you know, that it looks like they're not going to get what they want in terms of price, are you finding-- are you seeing-- expecting that some buyers are just going to pull their house off the market and wait for something to change? And maybe, if there are buyers-- sorry, sellers. If there are sellers like that who are pulling their houses off the market waiting for something better, could they end up in a situation that's actually even worse?
STEVE SARETSKY: Yeah, I think that's a real scenario. If I still think of mortgage rates stay where they are today, which is basically 4%, I think we're going to see prices correct. And I don't know if that's just 5% or if that's something greater than that. But that's my view. I think affordability is a huge challenge right now.
We've had a huge run-up in prices. And now, you throw on mortgage rates that have moved from about 2 and 1/2% to 4% in like six or seven weeks. I mean, that's a massive move. And so there's kind a bit of a shock in the market right now. And there's a lot of buyers that are like maybe I should wait this out.
I mean, it's kind of a tough dilemma, because they're looking at it and saying, listen, I've got a mortgage rate hold today that expires in 45 days. And I've got a mortgage rate at 3.2%, I've got to use it in 45 days. Otherwise, it expires, and my new rate's going to be 4.2%. And is the price going to come down enough to offset that new mortgage cost?
And so that's kind of the question that a lot of homebuyers seem to be asking, at least when they're chatting with me. That's a lot of the conversation right now. And so I think demand is somewhat paralyzed right now.
JESSY BAINS: So just to keep on this topic a little bit, Steve, so you're referring to 4% in the fixed mortgage space, right? So are enough buyers out there just completely disregarding fixed mortgages and just thinking them-- all their budgeting is done through the variable mortgage, and the fixed rate just doesn't much matter? I know that the banks like to push fixed rates on consumers for a variety of reasons. But if you're not listening to the bank when they're calling you to lock into fix and you're looking at variable rates, do fix rates even much matter?
STEVE SARETSKY: [LAUGHS] I'd love to hear John's thoughts on this. But basically, what I'm seeing is you've got your variable today still about 2%. Obviously, the Bank of Canada is probably going to raise rates tomorrow-- maybe 50 base-- Your variable is going up. I mean, it's probably going up to 2 and 1/2%. Here pretty quickly.
But the funny thing is the conversations that I'm having, it seems like everybody is kind of, I think, making arguably the wrong decision, which is everybody's panicking into locking in five-year fixed rates at 4%. So I think the messaging, and the media out there, and the bank economists, and everyone's going, oh my gosh, inflation-- rates are going up. 4% turns into 5% turns into 6%, and it seems like people are actually panicking, and locking in, and opting to go on a fixed side of things. And again, I still think there's a huge discount.
I still think that expectations for rate hikes are way too high. I mean, eight rate hikes this year I think is-- I don't think it's going to happen. But yeah, I think people are panicking into fixed rates at high levels in my opinion.
JESSY BAINS: Interesting. Just a quick programming note, we are recording this before the Bank of Canada widely expected to raise 50 basis points, but we shall see. It's what-- It's a super-sized rate hike, it's being called. And I know you've referred to the bu-- we'll get into later.
But Steve, I think you believe-- you called some parts of the budget a nothing burger, so it's like the McDonald's themed housing market these days-- nothing burgers, super size. OK, so John, Steve said he liked to hear what you have to say, so I would as well. What do you have to say about that?
JOHN PASALIS: Yeah, I mean, I agree with Steve. I mean, I think it's interesting to see buyers rushing in at 4-- I mean I wouldn't be rushing it at 4%. I mean, you got to imagine it also impacts what they can borrow. Because you're getting stress tested effectively at what-- 200 basis-- like [? 2 ?] [? full ?] percentage points above that. So you're kind of usually better off.
I'd be going variable right now, like I cannot see variable hitting 4% anytime soon anyways. So you're going to be probably in a better position if you go variable. And even knowing that rates are going to be going up, you know at least 50 to 100 basis points over the next little while. I agree with Steve. I would probably be going variable right now.
JESSY BAINS: Yeah. And there's a bunch of mortgage calculators out there online. So you know crunch some numbers and see what it would take. And it's going to take quite a few rate hikes to get to close that gap.
And as Steve says, something like eight rate hikes, we'll see if that's actually going to happen. OK, let's move on. This one comes to us from Jason. Jason asks, "What--" here's an idea.
"What if the government introduced a tax on a sale price that goes over and above the asking price? So make it a 50% penalty to the seller on all dollars over ask. Maybe we'd get back to a more reasonable bidding process versus blind bidding." What do you think about that, John?
JOHN PASALIS: Never going to happen. I mean you get a tax, no. Never going to happen. I mean, they ask-- people, I think, are missing the point. It's like an auction.
I mean, people want transparency. Imagine the asking price is just like listing it for $1 and letting the market decide, like it's kind of an irrelevant price, right? Then people are stuck on this idea that the asking price is meaningful, at least, when we have tons of offers. But it's a meaningless price, they may as well just listen for $1. So no, you can't you can't tax someone's gains.
I mean, at least not without kind of really impacting your ability to get re-elected in Canada, I mean because those capital gains are tax free. So I don't think that's necessarily a solution. And listen, they talked about ending blind bidding. My feeling is it's probably-- we're just talking about this coincidentally today with our agents. My instinct is it's actually probably going to make the market more competitive and probably drive-- like what getting rid of blind bidding gets away with is the one buyer who way over pays.
But it creates a lot more anxiety real time if it's an auction scenario. So I don't necessarily think it's going to be the result of any massive affordability solution. It's probably just going to keep prices elevated. I don't think it's going make a huge difference.
JESSY BAINS: I just imagine couples at auctions with their paddles, and one spouse wants that house real bad and keeps nudging the partner like go, and then like the competitive fire comes in. And it's like OK, 5 million to the gentleman in the front, who's getting poked by his wife to make this house happen--
JOHN PASALIS: And that's the thing. In an auction, it's real time, right? And there's nothing holding you back. You just throw money at it. Whereas the way things are now, you have to stop, you have to think about it, you have 30 minutes to decide, you got to revise your offer. But when it's real time, it's really easy to keep throwing an extra $5,000 or $10,000 at something if you really want it.
STEVE SARETSKY: Can I just chime in there?
JESSY BAINS: Yes, please do.
STEVE SARETSKY: Well, yeah. I mean how many taxes and new policies have we brought into the housing market like BC and Ontario over the last like three or four years? I mean, last time I checked, you had a record price growth over the last 18 to 24 months. And it's only now that mortgage rates are getting to 4%, and we're starting to see a slowdown.
So to kind of John's point, it's like these like fake teaser listing prices, I mean, good luck with that strategy in two or three months from now. I mean, it's already starting to not work. So I think the market ebbs and flows. I know that people want more transparency and open bidding process, but all I do is always say like look at Australia, they've got an auction style. Last time I checked, their house prices are equally as bad or worse than Canada's, so you know.
JESSY BAINS: OK, let's move on to Aleia. Aleia asks-- and this one's for John, because this is in his neck of the woods. "Is it possible to let me know about selling a semi-detached in the Malton area, if now is a good time. Since I missed the bidding war." I guess her situation depends.
Right, John? We don't know if she's bid on a house that's going to close and what her exact deal is. But what would be your message to her?
JOHN PASALIS: I mean, it's hard to time the market, like sell if you want to sell, if you want to move on. The market's still a seller's market. You know, I think there's a lot of talk about this slowdown. And I think too, some sellers are panicking too quickly. Like at the end of the day, it's still a seller's market.
You may have missed the period where every single home is getting 15 offers. But homes are still selling for decent prices as long as sellers are patient. The ones that are selling for below what they should are generally sellers who are anxious, who've already bought, and who needs to sell. But the ones that are patient are still doing OK.
JESSY BAINS: So what do you think about that strategy, John? Buying before-- or selling before you buy, buying before you sell. What's the right way-- I know you can't always time it exactly the way you want to. But what should come first? It's like the chicken or the egg kind of situation when it comes to real estate. What's your view?
JOHN PASALIS: I mean, I'm highly risk averse, so I normally would sell first. But that is not the norm, like 95% of people in Toronto would buy first and then sell. And to be honest, most of the time, it's the right approach. The market's pretty busy. It's hard to find a home. Houses sell quickly.
These are the periods where it starts becoming a little bit more questionable. Because when the market-- when the momentum is slowing, you got to imagine you're buying in a busy period. And by the time you sell, you're selling in potentially a slower market, right?
And that's why if you're going to buy and then sell, you've got to list your home like within a week. You don't want to wait four weeks because the market could be very-- we've seen how the market is turned already in four weeks. So you know, you've got to mitigate your risk, get a long closing, and basically list right away.
JESSY BAINS: Yeah, she's a fickle one that market. OK, let's move on to Sunil. Sunil wants to know-- let's give this one to Steve, because I know he's talked up Alberta a little bit. But "I'm planning to buy a single family home, so I'm just looking for the market, and it would be a great help if I could get some idea. Will the housing market in Canada, especially in Alberta and Ontario cool down in the near future?"
So let's start with Alberta. Steve, I know you've talked about Calgary as a good destination for somebody looking to buy a home. But do you-- I know it's heated up a little bit. I'm not sure, I'm not too up to speed on the numbers. But do you expect Calgary, Alberta, Edmonton to slow a little bit too the way we're seeing in Ontario and BC.
STEVE SARETSKY: Yes, [INAUDIBLE] maybe-- I'm not exactly the expert, per se, but I do think I look at the Calgary market, and I think there's like less-- there's about a month of inventory I think for single family houses. So it's a really tight market. It's not-- it's not something that people in Calgary are used to, but they are getting a lot of capital from Vancouver and Toronto that's pouring into that market. And if you look at affordability metrics, it's still one of the most affordable metrics in Canada. I think affordability metrics are better today than they were like eight or nine or 10 years ago.
So I think, ultimately, 4% mortgages slow it down, sure. But like I'm more concerned about price valuations and market corrections in some of the frothier markets in the suburbs of Vancouver, the suburbs of Ontario, where you've seen prices almost double in 3 years. That's already a very highly levered market. And now you tack on like rising mortgage rates. I think that those in the markets in my opinion that are kind of ripe for corrections.
I think like, you know, Calgary, Edmonton-- I mean, those markets are so cheap already like what are they going to crack? Like a house goes from $500,000 to $485,000, like I just don't get too concerned about that.
JESSY BAINS: OK. Now, let's move on to Sina [INAUDIBLE]. This comes to us by way of Twitter. And the question here is-- "Hey Steve, what do you think of the probability of pre-sales being underwater when the project is completed?" This is the one that's coming up a lot.
So "I'm looking to buy a two bedroom low rise in Langley and I'm quoted $800,000. Completion being in 2025. Thanks in advance for all that you are doing." Thank you. Steve.
STEVE SARETSKY: It's a lot of money for Langley. I think it always depends on the project, right? Like, the first question we've talked about on the show-- I'd be asking who is the developer? Are they reputable, they're actually complete the project if the market turns south?
What's the deposit structure? I mean, in Langley, I don't think I'd be putting down 20% deposit. I think that's way too much for that market. I don't know the square footage of that unit. I don't know if it's a high rise or if it's a low rise, wood frame.
But all I can say is pre-sales in general-- pre-sales in general today are, for the most part, fully priced. I think they're baking in a lot of future price expectations. I think the pre-sale pricing today is optimistic about the future of the housing market.
So I would be a little bit cautious on the pre-sale side. Now, don't get me wrong, there's still some pre-sales out there that I do like and that I would say you're fine. But as a whole, I think that there's been better times to buy pre-sales.