By Tom Albrecht | Dec 10, 2018 | Sellers
You may be thinking of buying, but you’re nervous about the future.
You may want to understand the Fort McMurray housing market more deeply.
If any of these is true, this blog is for you...
The housing market has changed and so have people’s lives. Many people want to sell, but are restricted by their financial position as a result of the oil price crash and credit availability.
In this article, we look at some imaginary families who bought the “average” single family home during different boom years and ask the question:
“At what point in the future will their mortgage balance fall below $582,500 (November 2018’s median sale value of a single-family home[efn_note]The interpretations of any MLS® data used are my own and don’t reflect the opinions of the Fort McMurray Real Estate Board or its members. There is plenty of my opinion here, but the data we are using is super accurate.[/efn_note])?”
Chart 1 shows this change in prices over the long-run, as well as the flattening out that has occurred this year[efn_note]In all of the charts and tables in this post, data is sourced with the following criteria: All property types without condo fees that are not vacant lots. The data covers only the following areas: Abasand, Beacon Hill, Dickinsfield, Downtown, Eagle Ridge, Grayling Terrace, Henning Ridge, Parsons North, Prairie Creek, Stonecreek, Thickwood, Timberlea, Waterways and Wood Buffalo[/efn_note].
[caption id="attachment_29727" align="aligncenter" width="853"] Chart 1: Fort McMurray Monthly Median Single Family Home Prices Over 10 Years[/caption]
Anecdotally, most of the homes bought during the boom were mortgage financed with either 0%, 5%, 10% or 20% down-payment mortgages, commonly 5% or 10%. Those loans tended to be amortized over 25-40 years and, at that time, competitive interest rates for 5-year term mortgages varied mostly between 2.5% and 5%.
Because prices fell rapidly in 2015, 2016 and 2017, many individuals and families who bought during the preceding boom period currently have home values that are below their mortgage balances.
As people’s lives change, so do their housing needs: Young families grow out of their starter homes, people want to locate to another town, city or province for family or employment reasons, and empty nesters prefer to downsize.
But without significant savings, the option of selling can be temporarily removed if a homeowner finds themselves in a situation where their mortgage balance is higher than what homes like theirs is trading for on the open market. In the meantime, it can be hard to make ends meet, and it can be deeply stressful for owners to have a home that is too expensive, or that doesn’t fit their family's important needs.
But there is hope, however distant...
So it’s only a matter of time.
This article takes some example families through an imaginary future (we are not predicting the future, just using one version of it as an example to show that there is hope). This article then estimates when those example families’ mortgage balances fall below today’s median single-family home price.
If you are struggling with life’s challenges and need someone to talk to, you can call Some Other Solutions’ (SOS) 24-hour crisis line at 780-743-4357 (HELP) https://someothersolutions.ca/information-referral/Most people know this, but it is worth repeating because it’s pretty cheerful: the way mortgages work, our next payment always pays down the balance more than the last. This means that our mortgage balances accelerate towards zero over time. Here’s a chart to illustrate the point[efn_note]You can find this chart and learn more about mortgage basics here: https://www.mortgagesandbox.com/mortgage-basics/[/efn_note]:
[caption id="attachment_29729" align="aligncenter" width="1000"] Chart 2: Mortgage Balance Accelerating Downwards Over Time[/caption]
To do so, we need to make some assumptions. Let’s say:
Analysis: Prices were not yet at their peak when this family purchased, but the long amortization meant that the mortgage balance came down only slowly, especially at first.
Analysis: This family bought at the very top, but because the amortization was only over 25 years, the balance is coming down quite sharply these days.
Analysis: Another family with 25-year amortization, but they haven’t yet had the benefit of time (unlike family number 2). In the next two and a half years alone, their mortgage balance will fall by just over $50,000.
[caption id="attachment_29728" align="aligncenter" width="850"] Table 2: When Example Families’ Mortgage Balances Fall Below $582,500[/caption]
Table 2 provides a summary of results:
[caption id="attachment_29730" align="aligncenter" width="406"] Table 2: Summary of Model Results[/caption]
As you can see in table 2, some of our example families can sell now, as it is currently late 2018, however the example families who bought between 2011 and 2015 cannot, unless they have saved money elsewhere (and are willing to use it), or made extra payments against their mortgage.
But you can also see that the time when those example families become liquid again in our model is almost upon us (2019-2021).
Well, if prices don’t fall (it’s a big if), the time when a lot of people are going to be able to sell and move is fast approaching. If your family bought during the boom, the time when you get what you need or want will come. Normally we caution against hope, because it’s not a strategy, but if you think the most likely scenario is that our market will remain balanced in the coming years, you can look forward to your dreams coming true, sooner or later.
And that’s the most cheerful thing I’ve been able to write for about 4 years. :)
We can also think a little about how this overhang of shadow listings (people who would sell if prices were higher), might affect the market…
For example, if there was a boom (they’ve happened before) right now and prices rose, you might expect there to be plenty of homes come onto the market which might limit price growth(?) This isn’t predicting the future, just thoughts.
But what if that happens after 2021, when most families have been able to make their moves, and there isn’t a big shadow inventory? If there was an upturn in the economy after 2021, new construction would have to be relied upon once again to provide housing supply.
And after 2021, you might expect the rate of foreclosures to drop because job loss doesn’t necessarily spell foreclosure if there is equity in the property because the homeowner has the option to sell.
These are just the things I think about at night, so I figure they’re worth sharing.
Every family has their own mortgage balance and their own home value today. Much of the market is stable, but there are parts where prices are under pressure, and the future cannot & should not be predicted.
For an in-depth analysis of your home and when you might be able to make your move, please feel free to get in touch: Our listing agents are trained to help you plan for your long-term future, and together they can help you get exactly what you want. It might be tomorrow or it might be in a few years...
But having a picture of right now, and forming a plan, always takes away stress.
If you are struggling with life’s challenges and need someone to talk to, you can call Some Other Solutions’ (SOS) 24-hour crisis line at 780-743-4357 (HELP) https://someothersolutions.ca/information-referral/