February 10, 2023

What Goes Around Comes Around - Issue 347

I’ve been following the narrative around interest rates and the real estate market these past few months and to see how the media has framed the conversation. The interesting part of this observation is that none of this is new and the media will present the news in a way that suits their needs.

Now before you think I’ve become all Trump-like about fake news, that’s not the case. This story is about the perspective being presented and the impact it has on the market. I don’t believe it’s a deliberate attempt to manipulate, but rather presenting something in the negative because we know that humans are programmed to be more responsive to negative information than to positive. This is why news directors use the term, “If it bleeds, it leads”.

I digress!

So back to our thoughts on Interest rates and current market conditions. I was chatting with my buddy Dan Johanis the Broker of Record with Pekoe Mortgages about today’s market versus what conditions were like in the late 1970’s and early 1980’s and which generation was more impacted by interest rates. We were both curious as to how this was positioned in the media.

Dan was able to dig through the archives at CBC and came up with a couple of interesting stories and the really interesting thing was how perspectives in the market changed over a short period of time.

Dan put together this short video clip featuring how interest rates and the market reacted during that time period. Click HERE to watch.

I can see the retort being formed after watching the clips.

Prices were much lower “back in the day”.

I started my real estate career in 1988 and mortgage rates were still in the 14-16% range. I recall many discussions with colleagues about how great the market would be if only the rates were down around 12%.

The thing is, people still had to buy and sell because of life situations. We got creative!

People selling with lower rate mortgages had a great advantage if their mortgage was assumable. We often had a property “pre-approved” for a mortgage. The sellers would often commit to buying down the interest rate by several percentage points and thereby making the home stand out and more attractive to prospective buyers (especially first time buyers). This was typically a better strategy than trying to gain attention with price reductions.

The key element here is that as the mortgage rates started climbing, the media focus was on the bad news. The market reacted and the perspective turned negative rapidly. A couple of years later, rates are still in the realm of credit card rates and the narrative is one of resignation. The difference being people were resigned to paying more for what they wanted. If they wanted to buy a home, trade up or move because of work, they did it and the mortgage rate was accepted as a necessary cost to achieve the dream of homeownership.

Our market conditions at the moment are nowhere near as “bad” as it was in the late 70’s early 80’s. Yet, if you listen to the noise in the market place you would think that nothing is or will sell in this market.

Filter out the noise, and that to me is opportunity knocking! While fear and apprehension will keep some folks on the sidelines, I believe there’s opportunities for both buyers and sellers in the early stages of the 2023 market.

Afterall, I’ve been through that market and now this one, and still have the T-shirt.

Stay tuned as Dan and I dig into this and see which generation is more impacted by mortgage rates.

Enjoy the weekend.

Paul

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