Rising Interest Rates:For Real This Time?

I think for many of us, we never thought the day would come. We have been warned over and over again, for years and years, that rates are going to start to go up very soon, but these frequent warnings have become as effective as a car alarm.

There has, however, been some changes in the past few weeks with the banks, and I think it's time to start paying attention to rate hikes. And by paying attention, I don't mean panicking that rates are going to return to the terrifying heights of 22.75%, as it did in August of 1981. That was a different time with a very different set of circumstances.

In the here and now, banks have been gently, but repeatedly, bumping up their rates. In the last week, rates have gone from 2.79 to 3.29%. My mortgage broker tells me she can barely keep up with the changes. Five year bonds keep going up, and the interest rates keep rising in step.  Though the rate hikes so far may be a bummer for any one with a variable mortgage, it probably won't change the world for most. Still, some believe this is the beginning of continuous rising rates. They have been so low for so long there is really no reason why they wouldn't go up. They certainly couldn't go down any more.

But what does that mean for the housing market? In the short term, it's making buyers move a bit more quickly to the buy. Many current buyers who have locked in their rates before they went up last week, have become more keen to buy now, before their pre-approved rate expires. So, if you were lucky enough to get locked in at 2.79 or 2.89, you will likely be a lot more keen on buying some thing with that rate while you have it. If you wait, you may lose that rate and have to take the higher rate.

In the short term, this is good for sellers too since it brings more buyers to the table. So, perhaps you own a property that has been sitting on the market for a month with no showings. This week you'll probably get three or four viewings.  One property in the east end received 18 offers this past week, way more than any one has expected - or at least me.  And I'm pretty sure this has something to do with these buyers who would like to buy with the better rate. Of course, this is not the norm. It doesn't mean all properties are selling off in huge bidding wars. It means there is a slight uptick in buyer activity and sales.

If rates continue to go up in the long term, it may effect the affordability of Toronto properties, effectively putting downward pressure on the rise of the value of homes. For buyers it simply means there money won't go as far. So, on the down side, paying off a new mortgage of $600,000 may cost you more in the months to come than it done a few months ago.  But rising rates can also mean that prices won't increase as much as they do when rates are low.

Also on the plus side for buyers, you will have less competition for condo units and houses. Because of the rising rates, some investors may start to find better returns on different kinds of investments, like a simple GIC, that will become more appealing at a higher interest rate.

If the government, like the banks, also raises rates, they will create some needed wiggle room. If the economy decides to tank again, the government will have a buffer. They can lower the rates and stimulate the economy, if necessary.  That would be pretty hard to do with today's interest rates.

In many ways,  we may be returning to more "normal" interest rates. But if you are a buyer, you may want to get pre-approved and lock in your interest rate as soon as you can, and get out there and buy something. Sellers, your property will be a lot more appealing when rates are low. It's one of the few times where buyer and seller can benefit at the same time.

What's the Most Important Part of a Real Estate Listing?

I know you're out there. You busy folks who spend your spare moments cruising the MLS and realtor.ca to see what's new and what's coming on the market in your favourite neighbourhood. You may not even be buying a house or condo. Maybe you're just curious what price your neighbours are listing their home.  But now you have become hooked on looking at properties at lunch, on your break, during dinner.  Maybe you're a binge MLSer who plans to look at a listing or two after dinner, and by midnight you're still online. Well, I'm not here to help you with your problem, but I have come across some info that may put your search into perspective. And if you are planning to sell your home, it may give you a sense what's important and not so important to marketing your home in a listing. 

According to a University of Norfolk study lengthily entitled "Toward an Understanding of Real Estate Home Buyer Internet Search Behaviour: An Application of Ocular Tracking Technology", those who look at real estate on the internet tend to favour some parts of the listing over other parts.  In fact, Professor Seiler and his researchers have tracked subjects who look at online listings, and found that first impressions make a big difference, like dating or a job interview. This study may not be the most definitely thing I have ever read, and I'm not sure I agree with it entirely, but there are some interesting findings.

The study finds that photos do make a huge difference to your listing. But what photo does the average viewer of real estate listings gravitate to first? Is it the stunning open concept living/dining areas?  The huge bedroom with a walk-in closet? Nope, they go to the exterior shot of the property, whether it's the exterior of a condo building or a house. In fact, 95% of viewers, according to this study, went to the exterior of the home first and dwelled on it for 20 seconds. So, the lesson here, if you are selling you house or condo, get an excellent shot of the exterior, because that is what's going to matter most. 

Following the exterior, kitchens are the second most viewed photo, followed by the living room and the master bedroom. The backyard receives the fewest views. 

As for the remarks online, people tend to prefer short descriptions. It appears that real estate online viewers grow bored when you rattle off name brands and appliances. They respond more to lifestyle and neighbourhood information. 

All in all, the study indicates that pretty pictures are looked at first, followed by the description of the property, location and price, and lastly were the remarks added by the real estate agent. 

But what does this mean to you? Well, maybe nothing at all. But if you are selling your house, you may want to put a bit more attention into the photos. Personally, I'm not convinced that a condo exterior will have as much of an impact as a house exterior. The condo's appeal really does rely on what lies in the interior.

I know when I'm looking at properties for my buyers, if I see a listing that shows the exterior of the building and all the amenities, and no photos inside, I feel that the seller or the salesperson in hiding some thing. Same goes for houses that show the exterior from 3 or 4 different angles accompanied by a photo of the yard.  With no interior shots, a viewer's mind will start to wander...  Why did they not include any indoor pics? What is going on inside? Decades of neglect, horders, devil worshippers, a portal to a magical kingdom?  Your imagination can go wild. Even if it's bad, I say put am inside pic in the listing. 

And let this study be a wake up call to those sellers and/or agents who take their own unprofessional photos with a lousy camera or their phone. As someone who knows a thing or two about lighting, I say it is the most important thing, next to a good camera. If you pick a discount agent, you may get photos that just don't stack up against the other listings.

And since so many people go online first to start their property purchase, it's worth spending some time staging and taking the right photos to draw in those MLSers out there. That's not from any study, but I think it's a pretty good opinion based on my experience.

What Deals are Real in Toronto Real Estate?

Everyone loves a deal. Especially, if it's the real deal.  Last week, for example, I went into a grocery store, and found out that every item for purchase in the store would have no HST charge for one day. So, 13% off. Really, it was just dumb luck and walking in at the right time. But it feels good to get a deal.

And when it comes to real estate, the desire to get a deal comes with higher stakes than the the 20 bucks I saved at the grocery store. But you need to navigate carefully. There are not always deals in the places you think there are and there are some deals to be had, if you approach real estate with a willingness to look at things differently.

 So, let's look at places where you think you may be getting a deal, but, you may find out that the deals are not really deals at all. 

1. Power or Sale  Properties

Many people believe the following:  If the bank takes over a property because the owner cannot pay the mortgage, the owner will be desperate to sell, and therefore, sell below market value. While the owner may be in a desperate situation, the bank is not. And the bank wants to make the maximum amount of money to cover the mortgage money owed. Still, I find that these power of sales tend to attract a lot of people, people who are looking for deals. I have even seen these power of sale properties sell above market value. All you do is say "power of sale" and you end up attracting a lot of buyers on the hunt for a deal.  The other down side to buying a property that is power of sale: There is no warranty on any thing. The bank doesn't know the history of the property or the state of its condition. So, what you buy is what you get. Now, that's not to say it's always a bad idea to buy power of sale, but don't assume all of them are unbelievable deals. 

2. Commissions

Some people don't want to pay commissions to any real estate salespeople. They think they can sell their property on their own and save themselves the standard 5%.  And there are some people who can sell their own property quickly and for good money, but they are few and far between. Why do I think this? Because there is a whole group of real estate agents who specialize in chasing FSBOS - For Sale By Owners. These sellers believe they are saving money by not paying commission. But they often don't know what is involved in selling a house from the marketing to the networking to the experience of doing sales to just answering phones and negotiating offers. They usually don't know to attract buyers. They either overprice and fail to attract any clients or underprice and sell too low to their neighbour who can't believe he or she landed such a great price. Again, there are people who have the background and the knowledge to pull this off. I do believe some folks can do it, but they are a mighty few. Don't believe you are saving yourself money when you do all the work and sell your home for less. 

3. Condo Incentives

These days, some preconstruction condos are offering incentives. I think buyers should be happy about this. Condos will offer free upgrades or even a rebate when you buy. The thing is, some of these condos have set their prices too high. They can sell much higher than a comparable resale condo, and now buyers are waking up to that fact. So, instead of reducing their prices, they offer incentives. Now, I'm not against incentives. I think they're great! But it's not a deal. It's condo developers waking up to the reality around them. They've priced their units too high, and now they are putting them closer to market value. 

Now, let's talk about where you may find some deals. You may have to have a bit of gumption to do some of these, but it is those who are willing to test their limits that often score big. 

1. Stigmatized Properties 

Now these are certainly not for everyone, but if someone had died on the property or if someone notorious has lived there, or even if it has the reputation for being haunted, then you may be able to get some thing for less. Of course, your house may be stigmatized still when you sell again, but with enough time,  you can make the house feel better. I find clients are more keen on buying a property where someone had died before the previous buyer. It acts like a kind of buffer.  This does not hold true for properties that have been grow ops. Yes, you can get them for less, but you can have real and serious damage to your house.

2. Emerging Neighbourhoods 

You need to put on your potential goggles with some neighbourhoods. If you see properties in an area with am improving commercial strip, development in infrastructure, and it's near other neighhourhoods where prices have gone up, then you may be able to get a deal. The deal arises from the tolerance required to wait for a neighbourhood to get better. If you can suck it up early on, then you can benefit when the neighbourhood improves, hopefully fast!

3. Older Condos

Sure, the maintenance fees can be a little higher and some are in need of some updating, but if all is well in the condo's status certificate, they sure do provide excellent price per square foot.  Simply put, they just don't offer prices like that with most preconstruction condos. And many older condos are central. I have one for sale now that has a walk score of 100. And let me tell you, it's pretty rare to have a property that scores a perfect 100/100. I believe that says some thing about how condos that have been around awhile have some of the best locations in the city. They were built before land in good locations became too expensive and when more land was available for development.  They can be overlooked for newer flashier and tinier condos, but you can add the flashy and new yourself and keep the space. 

So, that's my two cents. I wouldn't take any of this as hard and fast rules. I don't want you to buy a haunted house only to find out that a poltergeist has stolen your dog and your uncle through your spare room closet.  And you may just find a power of sale that is a really great find at this point in time in Toronto.  Consider these pointers more more as guides, something to point you in the right direction, and make you question what is a deal and what is not.