The real estate business has really ‘run the gamut’ this year.
I love that phrase – the origin is traced back to a musical concept developed by a cool medieval monk named Guido who essentially invented the first syllable-note system (think Do, Re, Mi). Back in the good old days of 1050, the lowest theoretical note at that time was called Gamma (which is the bottom line on a bass clef). ‘Do’ was actually called ‘Ut’ back then. Put them together and you’ve got a new system of notes that people can learn without being able to read (very important at the time). Over time, the phrase “run the gamut” came to mean “cover the entire spectrum”. Any day that I can incorporate a musical history lesson into a mortgage column is a good day.
The real estate business in Hamilton has run the gamut; the pendulum has swung from an insane seller’s market all the way to a buyer’s market within one year.
There will have been many factors that lead to the big swing that we have witnessed, but at the centre of it all was mortgage financing. It is hard to believe the number of changes that 2017 brought to us nice people in mortgage land, and all of it was in an attempt to stop people in Vancouver and Toronto from spending too much money.
For the first few months, they threw everything that they could at us with zero success. It wasn’t until the banks were forced to qualify their 5-year fixed rate mortgages at a much higher interest rate that we actually saw the big drop-off.
And what a drop-off we have seen! At the beginning of the year, we were advising clients to make sure they could actually buy a home before they sell, lest they be homeless. Some clients required daily scheming, as they went into battle with 10+ offers on each property. Many buyers were ready to despair.
In March, we had the first big change and things slowed a tiny bit. All default-insured mortgages were required to qualify at a much higher interest rate in case rates went up. That was also when the big change came through regarding insured refinances and mortgage brokers everywhere pulled their hair out.
With the new changes, the banks made a killing, with zero competition and interest rates went up by nearly 0.75%. The higher interest rates seemed to cut some of the buyers out of the market and made it slightly easier for other buyers to get in.
Fast forward to today – all mortgages are qualified based on a much higher interest rate. Lenders cannot lean on their 5-year fixed rate mortgages to push a deal through and now the market has slowed dramatically.
Heading into 2018, we have flipped the script. Now – we have to look at the risks of NOT being in a position to sell a home. Some clients have opted to sell their home first and move in with family. Others are looking at the possibility of renting out their existing home and holding onto it for the time being.
In the meantime, we continue to project the worst-case scenario for each client as they try to make sense of this turbulent real estate and mortgage market. If you know anyone who has been caught in the middle of this swing, please ask them to get in touch!
By Steve McKay