I'm in Vancouver this weekend and everywhere I look are news stories proclaiming the obvious: BC is now in a buyer's market.
What does this mean? Does it mean buyers outnumber the sellers? Does it mean today is a great day to buy? Should you jump into the ever-shrinking pool of people looking to get rich in real estate because you now have more choice?
I won't tell you not to buy. But I will tell you, based on my research, today is this worst day in the last eight years to buy a piece of BC real estate. It doesn't matter, in my opinion, if that piece of real estate is a SFH, a townhome, a condo, a recreational property, a float home, a mobile home, or whatever... all residential real estate is about to start posting real, year-over-year, declines in value. I'm predicting an October/November time frame for this. How low it will go is anyone's guess. But I think 25-30% is probably likely, and most definitely necessary.
So, you disagree with me, or maybe you're tired of renting, or maybe you can't fathom going to your workplace or a dinner party anymore and being the only person there who doesn't own at least two pieces of over-priced real estate. You've decided you're going to buy anyway.
What can you do in this buyer's market to protect yourself from declining prices? What strategies can you employ to take advantage of that "opportunity of a lifetime" your REALTOR may be telling you this market is?
Here's my list of helpful hints:
- Don't buy. (OK I deviated from what I said I won't do above). This is the best strategy. No matter what anyone tells you, the numbers don't lie. Real estate prices are not going up anymore. Look at all the price changes and sales below asking prices on PCS. Sure the YOY numbers are still up, but the 2008 trend is down. The Victoria market numbers in June are over 7% below the April 2008 price peak. Does this tell you prices are increasing? Wait. The longer you wait, and the longer people around you wait, the cheaper real estate will become. So don't buy.
- Take your time and look at 100 properties. Make your REALTOR (and you should use one, there is no reason not to, just be in control of your own decisions) do the work. They're hungry right now. They've had a hell of a run, but there are a hell of a lot of them now, so the competition is fierce. Use that to your advantage. Look at a lot of properties and see what the market is really like.
- When you've seen 100 properties (this should take a couple of months) take a weekend to review the ones you're interested that are still for sale (current sales statistics tell us most of them will be (80% plus)). Pick your top ten out of the one's remaining, then have your REALTOR search for new listings on the same block, go look at those.
- You've narrowed your search down to ten properties and seen a few of their neighbours, now narrow these down to the two or three that require no updating, no painting, no nothing. If you're going to pay top dollar for a piece of over-valued real estate, you shouldn't have to pay another dime to make it nice. If you can't find any immaculate houses for sale, keep looking. You should not have to pay for updates, make the current owners do this, and the only way to do this is to not put in offers on places that need updating, the market will make them fix their own problems.
- When you're ready to prepare an offer, look at what has happened to the market over the last few months and take that trend and extrapolate it out over the next few months. For example, between April and June 2008, the value of SFH's in Victoria dropped about 7%. So that should be the minimum below the asking value you should be willing to pay. I suggest doubling it for the first offer, that is, make your offer on that $400K home, 14%-15% below asking, or $340K. Do not be afraid of offending anyone. If your REALTOR refuses to take this offer to the vendor, get another REALTOR who will, there are plenty of them out there right now who will do this.
- Don't buy. I've said it again. I think I needed to, for me at least. Many realty companies also do rental or property management (Duttons and Pemberton Holmes definitely do) get one of these REALTORS to show you rental properties that are similar to what you are trying to buy. Do the math on these places and calculate the price difference between owning and renting including all the ownership related costs (monthly assessments on strata properties, taxes, maintenance etc). Buy when the ownership costs are the same (plus or minus 5%) as renting.
- If a low ball offer is refused, walk away. These sellers don't understand the market they are in. Rejection is the best medicine for them to get it.
- If a low ball offer is countered with a 1%-2% below asking price change, walk away and see point 8 above.
- If a low-ball offer is countered with 5%+ below, you've found a dance partner. Don't immediately jump to the halfway point between your first offer and the counter, add 1-2% to your original offer and stick to that price. No matter what. If it doesn't work on this house, it will eventually work on another, it just takes time, and the longer you wait in a buyer's market, the cheaper properties will get.
- If you are under any time constraints to buy, prepare yourself emotionally to lose. No one wins making rushed decisions in real estate during a buyer's market. (The reverse is true in a seller's market although the risks are still there). Find a way to be patient. Your family will thank you in the long run. And no matter what anyone tells you, there are no good opportunities to make money in declining assets. There are opportunities to prevent yourself from losing too much should something occur in the near-term before values start rising again. There are no guarantees that future values will rise above current ones should this market correct significantly. If you bank on prices increasing above current values, you are gambling with your family's future.
Your tips and strategies for FTBer's in comments.