How to resist the temptation of a red-hot real estate market
Before hanging up that ‘for sale’ sign, analyze what’s behind your desire to sell
Sellers are, undoubtedly, in the driver’s seat of the real estate market in Toronto and the GTA. The average price of a detached home in the GTA was $1.21 million in February — up from $1.07 million in January and up 32.5 per cent from the same time in 2016.
The promise of a huge financial return can be tempting for homeowners, whether they’re interested in moving or not.
But at a time when everything in the market comes with a huge price tag, the question of whether to stay in your home or go becomes a complicated one. And the question of where to go is even more difficult to answer.
For prospective sellers debating whether to sell and where to go, Gurinder Sandhu, the managing partner of RE/MAX Hallmark Realty Ltd., and Shannon Lee Simmons, a personal finance expert and the founder of New School of Finance, a fee-only financial plan- ning firm based in Toronto, have some advice.
Be analytical Sandhu says that in times when the red-hot real estate market dominates the daily news headlines, it’s important for prospective sellers to maintain perspective.
They should refocus on the personal reasons they have to sell — such as a new job they need to be closer to, a growing family, retirement, a need for less maintenance, etcetera.
“People need to take the emotion that’s been created due to the market as of late out of the equation,” Sandhu says.
“People need to really look at their reasons for moving, and evaluate those reasons . . . Those are the things that are more key to (making a decision) than the temptation to cash out.”
Don’t let fear of missing out rule Sandhu says concerns of missing out on a big sale have created a sense of fear among some sellers. “The implications of that fear are that you could make a decision you wouldn’t otherwise make,” he warns.
Bank of Montreal chief economist Douglas Porter recently asserted that Toronto is experiencing a housing bubble, though not everyone agrees. Bubble or not, Sandhu says it’s unrealistic to fear that prices will suddenly and dramatically fall.
“Understand that for the foreseeable future, we’re going to have this high demand and have this low supply and that prices are going to continue to go up,” Sandhu says.
“One doesn’t have to be afraid of price depreciation or a decrease, in my opinion.” Be wary of trading up If you’re looking to upsize and not downsize, the benefit might not be there. “If you own a home you didn’t think would be your forever home, you may feel trapped,” Simmons says. “(Because) if you sell, you’ll make money off the appreciation of the house, but if you are looking to ‘trade up’ and not downsize, you’re likely looking at a much more expensive home.
“Even with your large capital appreciation from your first house, many couples would wind up with bigger mortgages still,” she continues. “Surging house prices really help those who want to sell and downsize, but that is not always the case for those who want to sell and move to a bigger, now more expensive, place.” When it makes sense to cash in For retirees and those nearing retirement, who are typically looking to downsize and/or modify their lifestyles, cashing in now can have a huge impact on their golden years.
“Those who are nearing retirement may be sitting on homes that have appreciated by hundreds of thousands of dollars. Since this would be their primary residence, there is no capital gains tax,” Simmons explains. “This can be a game-changer for someone’s retirement portfolio.” Consider all the options for your next move To maximize the profits of a home sale, sellers need to be open to a variety of possible scenarios for their next chapter. “Look at what you really want for the next phase of your life,” Sandhu says.
“You have options of renting, of buying a condo, getting into a retirement community, relocating to other areas out of the city, so your gain is larger.”
Simmons advises to shrug off any stigma about renting. “There can absolutely be financial benefit in cashing out and renting,” she says.