Market still very buoyant

With Thanksgiving in the books and Hallowe’en just around the corner, the real estate market in Winnipeg is still “treating” buyers and sellers to record activity.

The numbers are in for September and month-over-month and year-over-year the data show that the Multiple Listing Service® offered by REALTORS® is the place to be whether buying or selling.

For the month of September, listings through the MLS® were up over 22 per cent from August — 1,403 vs. 1,143 — which should start to provide some much needed inventory to bring the market back into balance. Sales through the MLS® were down just six properties from last year’s record-setting September  —1,018 vs. 1,024 — and dollar volume is up a staggering 12 per cent —$122,657,000 vs. $109,535,000. 

The board’s MLS® went over a $1 billion in sales in the second week in September, registering its third $1 billion year in a row.

And year-to-date, the September numbers continue to feed a record setting year. January to October MLS® listings are up eight per cent, sales up are up seven per cent and dollar volume is up 17 per cent.

The highest priced single-family residential MLS® property sold in September for $1.8 million.

The lowest priced single-family residential MLS® listing sold in September for $9,900.

The average number of days on the market was 22.

There are again projections that interest rates will rise in the coming months. We have said in this column many times in the past that interest rates are not a leading indicator of real estate activity. When interest rates were over 20 per cent in 1981, people were still buying houses, refinancing and even buying real estate as an investment.

Anyone looking to buy merely has to do the math to see the impact of a quarter or  half per cent interest rate increase on the affordability of the property they want to purchase.

On a $100,000 mortgage over 25 years, the monthly principal and interest repayment at six per cent is $639.81. At 6.5 per cent interest the payments are just $669.83.

So, a half point rise in interest rates only makes a difference of a dollar a day on a $100,000 mortgage. If rates jumped a whole point to seven per cent, the monthly payment would still only be $700.42 which is still a manageable number to budget for shelter for most people.

So, projections of interest rate hikes aren’t as devastating as the headline writers would have us to believe. With interest rates at historic lows to start with, consumers are still getting a pretty good deal when borrowing to invest in a principal residence or other investment property.

Maybe those playing the game of sitting on a variable-rate mortgage will decide to lock in to a favourable term if rates go up, but that will only affect the financial houses and not the real estate business.

And, maybe a dramatic rise would decrease or shut down the move-up segment of real estate for a while. But, people still need shelter. And, with the volatility of the stock market, if people are looking to real estate as shelter and an investment, they know that they do not have to put down the full purchase price to benefit from escalating prices. If an investor wants to take advantage of gold or the oil patch, for a $100,000 stake they have to put up $100,000.

For a $100,000 property, an investor can buy that property with $10,000 down and mortgage the rest. He or she can then move in and quit paying rent, or could rent it out to someone else and have that tenant pay the mortgage (this would impact the tax position of the investor).

If the investor bought the property and lived in it as his or her principal residence while paying down the mortgage instead of rent, that’s one way of benefiting from the investment — by building equity. But, if property values are escalating as they have over the past few years, the investor gets to take advantage of that increase as well. If the $100,000 property increases in value by 20 per cent in two to three years and the investor sells, not only does he/she recoup the equity built up from paying down the mortgage, but also realizes a tax-free $20,000 capital gain. And that gain was on a $10,000 investment — not a $100,000 investment!

There are costs associated with ownership that are not realized in renting, but all-in-all it’s not a bad return on a $10,000 down payment.

So, whether looking for affordable shelter or a profitable investment, partner with a REALTOR®.