Recently, we released a Q3 market update. This piece is a follow-up to that update, where we’ll dig even deeper into our findings and what’s been going on in the market.
First things first: what we compared last time was Q3 2022 versus Q3 2021. But lots of people have been asking about what happened between Q2 and Q3 2022. So we’re going to shed a little light!
What’s changed over the last quarter?
If we’re looking at the Montreal market, single-family homes have dropped about 12% from Q2 to Q3. The condo market on the island dropped about 7% during that same period, and multiplexes up to five units also dropped by 3%.
So, we’re seeing a consistent drop across the board on the island of Montreal, which is somewhat consistent with the trend we noticed in the previous post.
Now, the big question: so what? What does this mean for buyers and sellers?
It’s a particularly good time to buy
Interest rates have gone up significantly over the period of time we’re talking about. Therefore, we’re going to be paying a lot more interest compared to the capital amount on the same mortgage.
However, despite these hikes, it’s actually cheaper to purchase a property if you’re considering taking a five-year term.
As an example, let’s imagine a property was listed at $700,000 in Q2, and let’s say you obtained a 2.8% interest rate. You would have paid significantly less interest, but the total cost of the home would have been higher based on the initial acquisition price.
If you were to take that same $700,000 property and reduce it by 12% – AKA the Q3 average drop – you’d be purchasing at about $609,000. Let’s apply a 5.5% interest rate to that, which is equivalent to about $50,000 more over that entire period.
Since you saved $90,000 on the purchase price, you’d still have $40,000 of upside.
Now, this is also assuming that you actually take a five year term. Right now, we’re not advising any of our clients to take a five year term: we believe that the interest rate hikes are temporary, and there will be a lot more upside if you were to take a two-year term or go with a variable rate then jump on the change as soon as it gets better.
For people who did buy into the market when it was a little bit higher, that’s okay. You bought this home or this condo because you were interested in living there, and you did it for your family. Real estate prices, like the stock market, go up and down.
We’re expecting to have maybe one more interest rate hike at the beginning of next year, then they should remain stable for a while before we see them come back down. The latest economic reports speculate that by 2024, we’ll start to see interest rates come back down, and we suspect that’s when prices will start to climb again.
So, for people who are currently in the market, don’t fret about the high interest rates. Take advantage of the fact that prices are down. It’s not uncommon to see homes go for $50,000 to $100,000 under asking, which has been totally unheard of over the last few years.
Have more questions about what the market’s been up to, and how to make the best financial move? We’re constantly monitoring the Montreal scene, so reach out any time!