Up Markets and Down Markets, When to Buy and Sell. (Part 5)

This is part 5 of a series where I explore some of the views/assumptions commonly held by people regarding how real estate markets work and what they mean to people who are buying themselves a home. The following is intended to be read in the context of the rest of the series so I recommend reading the other posts to make this one make more sense. The first of the series can be found here.

Objection #5

“I need to move but I want to move when the market it high because it’s the best time to buy/sell.”

Now, if you’re moving within the same town or general area, it’s almost always the case that your house or condo or whatever is going to move up or down in parallel with others in your vicinity. But as people tend to change price brackets of homes when they move, this is one point where what the market is doing can affect your timing in terms of maximizing your money.

The only exception that comes to mind is if something has changed with your property that will either increase or decrease its value in relation to the rest of what’s out there. For example, the home itself is a condo that has started to leak recently, or the neighbourhood took a sudden turn for the worse, conversely it may have suddenly become a trendy neighbourhood or you may have done some really nice renos to it.

When you change price brackets, a more expensive market means a more expensive difference, and a less expensive market means a less expensive difference.

Think of it this way; Today, Property A is valued at $200,000 and Property B is valued at $400,000.  If you move from A to B right now, there is of course a $200,000 difference today. (I’m eliminating talk of fees and taxes and so on to keep this simple.)

Say you wait until property values have gone up 25% to move from A to B. A is then worth $250,000 and B is worth $500,000. Now you’re paying $250,000 for the same move. In this case, waiting for the market to go up has cost you an extra $50,000.

Now let’s say you wait until the market goes down the same amount (I highly doubt this will happen, but for the simplicity of the example I want to use the same number on both ends.) Now property A is worth $150,000 and property B is worth $300,000. This time you’re paying a $150,000 difference for the move.

So, in the case of upsizing, it makes sense to do it in a lower market.

Of course, if you are downsizing, the numbers work in the reverse direction. This mainly applies to empty nesters for example who don’t want all that extra space or a retiree who wants to live somewhere that doesn’t require a lot up cleaning or maintenane. If this is you, you’ll be moving from Property B to Property A. In the high market that means you get $250,000 in your pocket and in the low market you get $150,000 in your pocket. This is good money to have for your retirement, so time it well if this is the sort of thing you plan to do.

The problem is, that no one can predict with certainty what future markets will do, especially in the long term.  I really don’t know what’s coming next year. I see many reasons why things may go either up or down next year. I do think that things will be soft for the remainder of the year because Christmas is coming and every year sometime in November pretty much everyone stops thinking about real estate and starts thinking about Christmas. Only the more determined sellers and buyers continue to stay at it during that time.

Thinking deeply about timing your move along with the markets can cause you to overlook other important factors like whether or not you need to move right now. There is also the biggest one of all, are you in a financial position to make that move if it’s to a more expensive home? So, I refer you back to my original statement. If you are in a position to be able to make those payments… why worry? Which reminds me, I spend a lot of time reading about things financial to help me with this blog. Everywhere I turn is the same message from variosu experts, the global credit crunch and economic slowdown is something that is being felt the world over, but Canada has managed to be one of it not the least affected. Just one of the many reasons why I still live here despite opportunities elsewhere.

Continue on to the last part of this series by licking here.

Ryan Coffey

No comments

You must be logged in to post a comment.