Remember 2015? Ah those heady days. A time before presidential hair malfunctions, Tesla cars in space and caloric contents listed next to fast food menu items (like any of us really wants that information).
If the intervening years have not bleached your mind of that simpler time you may also remember a red-hot housing market in Southern Ontario. As your trusted mortgage advisors, we got in the habit of telling clients who were thinking of selling their home and buying a new one to go ahead and buy first and list their homes after. Listings were selling incredibly fast and buyers needed to be nimble if they wanted to land their desired home.
Boy have times changed. In the last 6 months alone we have seen a major tightening of mortgage rules, compounded by higher interest rates on both fixed and variable mortgages. Combine those factors with a general fatigue of potential buyers who are worn out by the gridiron that was our hot housing market and the result is a marked increase in the amount of time that homes stay on the market.
Before things cooled off, a buyers biggest concern was accessing bridge financing to cover the gap between the closing dates of their purchases and those of their sales.
We now find ourselves in a time when it makes more sense to sell your home first, then go out and buy new. The fact that homes are not selling like hotcakes anymore means that some home owners can find themselves in the unfortunate position of having to close on their purchases without having access to the equity from the sale of their existing homes (read ‘no down payment to close the deal’).
The question is this: How do buyers protect themselves in this market? (Now pay attention this might get complicated.)
Step 1: Sell your house!
Step 2: Buy a house!
“But Boyce, what happens if I don’t find a new house before I have to move out of my old one?!”, “or what if my sale closes before my purchase?! Won’t I be homeless?!”
The answer is much more simple and inexpensive than you may think. As with all the options below, the first step is to put your belongings in storage. For the average family this should cost approximately $200 to $400 a month, but make sure you are not moving and storing junk. (Source: Jeff Richardson, President of Appleby Moving and Storage).
From here, I will list your options in descending order of least appealing to most effective:
- Be homeless – very cheap, not recommended for families with small children.
- Stay with in-laws – very cheap, potentially uncomfortable.
- Stay in a hotel – super expensive…actually, don’t do this.
- Short term rentals (Airbnb, VRBO et al) – GREAT option. After a quick scan of what’s available in Hamilton, a family can rent a whole house for anywhere from $75 to $150 per day. When you consider the average carrying cost of a home around $90/day (mortgage, property tax, insurance, utilities etc), $150/day to have your very own house with all or at least most of the comforts of home is not a terrible deal. This option also affords you the luxury of time so you don’t end up settling on a purchase that’s not right for your family.
Our message to clients has always been one of patience and flexibility. In this new marketplace it’s important to understand that you always have options.