When I was growing up many of my friends dreamed of buying a luxury car like a BMW or Mercedes Benz. By the time I was in my late 20’s these cars became as common as Ford F150’s. Leasing and creative financing options allowed regular folk to drive these fancy wheels. Over the last few years something similar has happened in Real Estate.

With mortgage rates sitting at just over 0% homeowners who had properties that were seen as average could sell their homes and move to a luxury home with an affordable increase in monthly payments. If a homeowner had a property worth somewhere around $900,000 with a $200,000 mortgage, adding $500,000 more in financing would increase your payment from around $750/mth to around $2,600/mth. Given that rents for a small detached home in our area are north of $2,500 this seems like a small price to pay to live in a luxury setting.

What we saw when the rates were at record lows, were homeowners upsizing in size and location. Luxury became almost a given, as the Buyers were demanding renovated kitchens, baths, pools, landscaping and bathrooms you would never want to leave.

Then the rates jumped up, and jumped up again. Currently we are sitting at around 6% for a 5 year term. That same $500,000 increase in mortgage is now around $3,200/mth, an increase of $1,300. With these increases in monthly payments, the quartz in the laundry room does not have the same appeal.

We have moved into a Real Estate marketplace where needs outweigh wants. Meaning, people are making a move from one home to another, or exiting the market based on their current or future requirements. We recently worked with a family who had a small townhome and with baby number 2 on the way, needeing a larger home close to parks. That was a need. Another single gal sold her condo and rented, planning on spending the equity from her home on travel. Another need.

What we are seeing is a shift where luxury properties have adjusted in price and are sitting a bit longer before they sell. This is true in the “higher luxury” price range. This, in Whitby would be in the $1,500,000 – $2,000,000 range. Out of 29 homes for sale only 5 have sold in the past month. Drop down to $1,000,000 – $1,300,000 and numbers change dramatically. In this group, 41 homes out of 47 sold in the past month.

This indicates that as the cost to carry homes increases the “majority” of Buyers either stop buying or downsize their expectations. The Buyers who have cash or extremely large down-payments tend to be like investors; they sit on the sidelines waiting to see where this market is going. If the values continue to slide, there will be some homeowners who have an urgent need to sell, and this is where the deals in the luxury market happen. We are starting to see homes hitting the market that were purchased in the past year, in some cases due to the fact that the low variable mortgages the homeowners relied on have spiked and the payments have become unmanageable.

We are in a transitional market, and with this transition there will be some who are able to move and secure luxury properties at lower prices. When transitions happen in Real Estate there will always be people who acquire more for less and others not as fortunate who are forced by the market forces to sell and lose equity or opportunity.

If you are curious about how the Real Estate market has affected your property, or interested in finding one of the “deals” in the marketplace, I can be reached at lindsay@buyselllove.ca

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