Falling home prices may not be leading to widespread buyers’ remorse

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Millicent Wong
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A recent survey suggests that a large number of homebuyers who bought at the peak are very happy with their purchase

As price movements with larger deviations from the long-term trend have a greater impact on consumer sentiment, the notion that buyer regret is now more pronounced is gaining ground. As price movements with larger deviations from the long-term trend have a greater impact on consumer sentiment, the notion that buyer regret is now more pronounced is gaining ground. Photo by Mark Blinch/Reuters Files

People who bought homes earlier this year when prices were at their peak must be wondering if they made the right decision at the right time now that prices are falling.

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Homebuyers and sellers have long been familiar with regret. Once you’ve agreed on a transaction—a firm offer—in principle, regret can set in.

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Sellers may feel they accepted an offer too quickly and wonder if there would have been a higher offer if they had waited a little longer. Buyers, on the other hand, are more likely to feel remorse after their offer is accepted, fearing they paid too much, otherwise why would the sellers have accepted their offer.

Real estate agents are usually able to convince buyers and sellers that they made the right decision when housing markets are balanced with modest price increases. However, this becomes more difficult when sharp declines in house prices are observed over a short period, as has been the case since February.

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The decline in average prices – not adjusted for housing quality, type and size – is more pronounced than in the housing price indices adjusted for size and quality. However, as price movements with larger deviations from the long-term trend have a greater impact on consumer sentiment, the notion that buyer remorse is now more pronounced is gaining ground.

In the greater Toronto area, average home prices fell to $1.08 million in August from $1.33 million in February, a decline of more than $250,000, or 19 percent. Those who bought homes at the peak of the market must be wondering about the timing of their purchase. Some may even feel remorse, but maybe not as many as people think.

A recent survey conducted by Zolo Realty surveyed nearly 1,200 people who bought a home during the pandemic and found that the vast majority of them were very happy with their purchase. In fact, 63 percent said “they would still be happy in their home even if the housing market declined significantly.”

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Shoppers who moved to another province were even happier, possibly due to the lower prices they paid compared to where they moved from.

But what about the risk-takers who were quick and easy with their buying decisions and waived financing and viewing terms when buying a home? A much smaller proportion of these shoppers, 58 percent, continued to say they were satisfied with their purchase. Put another way, 42 percent of those buyers might have mixed feelings right now.

Still, 84 percent of those who paid above list price during the pandemic were happy with their purchase. They may not necessarily have overpaid, as listing prices during the pandemic have been deliberately set lower than the price of comparable recent sales to attract buyers and encourage bidding wars.

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Overall, however, Zolo Realty’s survey suggests that buyer regret isn’t as widespread as recent headlines suggest.

There are a few reasons why concerns about regret are overblown. First, most of the talk of regret is anecdotal, based on conversations with a few real estate agents rather than actual surveys of recent homebuyers.

  1. Housing starts in Canada fell in August, the Canada Mortgage and Housing Corporation reported.

    Housing starts fall by almost 3% on supply concerns

  2. A realtor sign outside a house for sale in Toronto.

    Canada’s average home price is down almost 4% year-on-year

  3. Homes under construction in a development in Langford, BC

    According to reports, the housing stock in major Canadian centers could reach a crisis point

Also, most buyers have been buying homes during the pandemic to fill a need. The survey found that 53 percent of buyers needed more space, 43 percent were fed up with renting, 28 percent thought buying was a good investment, and 24 percent felt their previous home configuration didn’t meet their needs.

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Another reason for the widespread regret is that most homebuyers know that even with lower home prices, their mortgage payments could still be higher due to high interest rates.

Consider the following mortgage payment comparison. With a 20 percent down payment and a five-year fixed rate of 2.3 percent on a 30-year mortgage, the monthly mortgage payment for an average home in the GTA in February would have been about $4,100. With today’s higher interest rates of 4.3 percent, the average home, while cheaper, now requires $4,300 in mortgage payments. Higher interest rates also mean borrowers have to pay much higher interest over the life of the loan.

Buying a home is a long-term decision for most families who intend to live in the same home for a long time. It’s not just an investment, it’s an investment in people and places. For those with a long-term horizon, regret shouldn’t be a problem.

Murtaza Haider is Professor of Real Estate Management and Director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.

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