| Real Estate Market

Whether you own a home or have a portfolio of investment properties, it’s always a tricky decision knowing when it’s the best time to sell. “Timing the market” is an investment strategy some property owners use. However, we’d say it’s an unsafe strategy for any investment because it relies on prediction. Here we look at the truth about timing the market and why its logic is flawed.

How Does Timing the Market Work?

Timing the market is an investment strategy often used for stocks. It determines the best time to buy and sell based on “expected” price changes. Although real estate does play into this approach to a certain extent, realistically, we know that timing the market is far too iffy. It just takes looking back over the past few years to understand how risky it is to figure out when you can expect to see that mega profit or ultimate deal. Although real estate prices indeed tend to go up, the issue is that timing in real estate depends far more on the whens of what you paid than the whens of seeing the best profits. 

Let’s explain a little clearer: 

To make it work, you’d need to know when prices will go up and when someone will offer you that ideal price. Here’s the poser: Even if you had the inside scoop on price increases, how can you possibly get your property on the market in time and then get a buyer just as prices rise, with a guarantee they’ll be willing to pay your asking price or more? And how can you possibly know if that price won’t increase by a massive amount within the next few days, weeks, or months? See. Iffy. 

Likewise, if you’re buying, in most cases, real estate prices rise. So, by waiting for prices to bottom out, it’s far more likely you’ll pay more when you finally realize prices aren’t going to fall enough to provide an opportunity. Although you might see opportunities to put in lower bids when more houses are on the market, again, you’ll still see prices inch upward, the opposite of the direction you want.  See. Iffy. 

Looking for more tips for buying a house in a tight market? The resources below will help give you an edge:

Recession and Real Estate 

What we tend to see in real estate is that housing prices “adjust” during a recession. By this, we mean that although sales will drop, recessions tend to mean people have less money, so in turn, the number of buyers will also decrease. So, housing prices tend to even out as opposed to dropping drastically. When it comes to timing your purchase, it’s best to find a savvy real estate team that watches the market. When they spot flat prices and longer days on the market, you can buy, and when prices increase, and inventory is lower, you can sell. Less iffy!

The Best Time is the Right Time

Hmmm, this seems a bit repetitive. But it’s true. When you’re ready to make a change to buy or sell property, there tends to be a reason. Whether it’s an itch you’ve got to scratch, life throwing you a curve ball, or you are financially driven, you’ll sell when you feel the time is right. Some examples might include: 

  • Your relationship status has changed, whether it’s divorce, marriage, or something in between
  • It’s time to change your investment strategy and sell your property to diversity your portfolio 
  • There are tax implications, such as the vacant property tax 
  • Your mortgage term is ending, and you’re not so keen on the current interest rates the banks are offering you
  • Deadbeat tenants occupy your rental unit, or your favourite tenant of many years is moving 
  • Your financial situation has changed for better or worse
  • Your health has changed for better or worse, impacting your ability to maintain your property

These are just a few examples of when people know it’s the best time because it is the right time—no predictions required. 

Just like buying or selling, the best time to invest is when it’s right for you. But how do you know? The information below can help:

 

No Crystal Ball

Even the most insightful real estate strategist can’t predict with 100% certainty what will happen. So, when do you buy, and when do you sell? Let’s take a look:

Buying

When it comes to buying, as real estate guru Ray Brown says, “The best time to buy was five years ago.” As mentioned, buying is all about flat prices and longer days on market. However, it’s also about the “now” of when you have the money to afford a home. If you:

  • Have a reasonable down payment saved
  • Have enough income to pass the mortgage stress test
  • Aren’t scared off by current interest rates (at any time)
  • Are at a place in life where home ownership feels right
  • Are okay with what your budget will get you

Then it’s a good time to buy for you. 

Selling

One thing for certain when selling is that profitably is all about when you bought, what you paid, and your current equity. When you deduct what you paid from the current market value, you’ll see how much you’ll earn when you sell. The less you paid for your home, and the longer you’ve owned it, the more profit you’ll earn. This is because you’ve been paying down your mortgage, and every loonie you’ve paid into the mortgage increases the amount of money that goes into your pocket when you sell, right? Wrongish. 

Selling too soon is never a good idea due to scary “amortization.” Your mortgage “principal” is the amount of money you borrowed. But, with mortgages, your payments are split, with some going to the principal and the rest going towards interest. In most cases, there are also property taxes and insurance involved. So, initially, you pay more interest because your balance is higher. Then, as the balance drops, more goes towards the principal because interest is applied to a smaller and smaller balance. Most people generally finish paying off the interest in about five years. So, speaking to your bank to understand the numbers is essential because profits first go towards paying the mortgage balance. After that, the remainder is all yours. As a result, you need to time selling based on those numbers, not on some pie-in-the-sky prediction. Plain and simple. 

The Bottom Line

In both scenarios, there are always extenuating circumstances that impact your real estate decisions. There are far too many ifs to rely on a strategy based on predictions. By working with a real estate team that understands the market, and considering your situation, you can time things perfectly for you. 

If you’re looking for the best Toronto real estate team to guide you on making wise property investment decisions, call The Christine Cowern Team at 416.291.7372 or email us at hello@christinecowern.com. We’d love to work with you!