The 5-Yr Buy & Hold Rule Builds Wealth Pt.1

Over the last number of months real estate values have no doubt been declining resulting in a wait and see for many. We all know that the rise in interest rates, soaring prices, plus other factors have contributed to this market reaction. And, predictions by experts are all over the map.

Can You Predict When the Time is Right?

This article is not about making another prediction. It’s also not about timing the market before deciding to buy or sell. One lesson learned over the years is that it is next to impossible to time the market. That is, to wait it out and to see how much further prices will fall, or even climb, before deciding to make a move. Read on.

Is it FOMO or FOLO on Equity?

In a hot seller’s market buyers jump in for fear of missing out (FOMO). As was seen prior to March 2023 buyers were jumping into the market with wild abandon. In a buyer’s market buyers withdraw from the market for fear of losing out (FOLO) on some of their equity.

Are We Seeing More Activity?

Yet not all buyers are standing on the sidelines. We are starting to see activity improve as the spring market approaches: more showings and more people attending open houses. As well, once a list price is reduced to the point of attracting buyers and their agents the property tends to sell. So some buyers continue to keep a close eye on prices, interest rates and affordability because they want to buy.

Where Did The Investors Go?

Investors have for the most part opted out of the market given today’s bearish conditions. As much as they contributed to soaring prices, their absence has helped to create far less competition and helped to dampen prices. According to Stats Canada, 2020 investors represented about 20% of the buyers in Ontario, that’s 1 out of 5 buyers; which suggests that due to the fear of missing out in the following years that number most likely increased. As well the Federal Government has imposed a penalty on short term buyers. As of January 1, 2023 a penalty will be imposed on anyone who buys a home and sells it within 12 months. Any gain will be taxed as 100% income and not on capital gain: 50% of the net income.

Declines Have Tapered Off Some

Yes prices have continued to fall; however declines in the overall benchmark price for Niagara has tapered off from -3.7% between August and September 2022, to only -.4% between December 2022 and January 2023. As well, consider the following:

• Today’s benchmark price compared to 12 months ago dropped by
  -17.5%, yet
• Today’s price compared to 3 years ago has increased by +44%, and
• Today’s price versus 5 years ago has increased by 67.4%.

In addition, Canada is aiming to welcome 465,000 immigrants in 2023 with increased amounts in 2024 and 2025. This should once again contribute to applying upward pressure on home prices.

What’s the Take-Away?

–Buying a home for the long haul will result in equity gained even if some loss is encountered in the short term. As indicated, holding on to your home purchase for 5 years will pay dividends in increased wealth for the home owner.

–Attempting to time the market can and often backfires.