March 2013 Greater Vancouver Real Estate Market Update
Blog › Market Views
"There are so many real estate myths out there that people take as being the gospel,” says Ron Abraham, president of the Ontario Real Estate Association. REM recently asked three people in the industry about some of these real estate perceptions.
1. Houses that are professionally staged sell for more than non-staged homes.
“Staging a home can add dollars to a property’s sold price but it is more important for the property’s features and functions to show well,” says Ann Hannah, president of the Toronto Real Estate Board. “Allocating funds toward a new countertop, a fresh paint job or a good cleaning may in fact be money more wisely spent.”
2. Buying any real estate is a great investment.
“Buy any property as an investment is definitely a myth. Not only is it wrong; it can be financially ruinous,” says Don R. Campbell, a Canadian-based real estate investor and founding partner of the Real Estate Investment Network and Cutting Edge Research. “This myth is often perpetrated by those in the business of selling real estate and has been debunked over and over, only to be re-invigorated when it serves those who are trying to sell properties that make current poor investments,” he says.
“One key determinant for any property purchase is: Is it speculation or is it an investment? A property that does not carry itself through the income it generates is speculative. That doesn’t make it wrong, but it does add a much higher level of risk. A property with income that not only covers all operations and financing costs but also provides an income is a true investment. With this additional income, you can afford to hang on if a market doesn’t perform on the equity appreciation side – without this income the emotional and financial roller-coaster is much more violent and in fact can throw you right off the tracks,” says Campbell.
He says a good question to decide if the property is worth adding to your portfolio is: “ ‘If I bought 10 of these and the market stayed flat, would I still be getting closer to my overall financial goal – or would it hurt badly?’ If it is getting you closer, then it is worth grabbing. If it isn’t, then it is a speculative purchase with high risk,” says Campbell.
3. Choosing to sell your home yourself instead of using a Realtor will save you money.
“Homeowners who choose to sell a property on their own should consider that for the most part, buyers prefer not to negotiate directly with sellers,” says Hannah. “Buyers might, for example, have reservations as to whether homeowners are representing the condition of the property in a forthright manner. More importantly, those who use the services of a Realtor can do so with the confidence that they are entering into one of their life’s most significant transactions with a knowledgeable professional who is governed by rules, regulations and legislation. As with most things in life, you get what you pay for.”
4. Spring is the best time to purchase a new house.
“That will depend on the market,” says Abraham. “Is spring the best time to buy a home in a cottage market? No – the best time for a cottage market may be in October or November when there isn’t as much activity. A lot depends on the kind of market that that particular area is enjoying or not enjoying. Many people feel that spring is a good time because if you buy a home in spring and you don’t close the deal until the end of June, the kids are out of school. Or you close the deal between the end of June and before September so you move before the kids go back to school. You don’t want to start them in school in September and have to move them around December. For a family with young children, that might be an easier way to buy a home but it doesn’t make this myth a blanket statement,” he says.
5. Homes with pools are harder to sell.
“Homes with pools can narrow the interest of buyers, particularly when they have young children, says Hannah. “Buyers don’t always want the risk or the upkeep of a pool. Conversely, buyers who want a pool generally regard it as a bonus. If there is a pool, it is best if it is situated on a lot that is big enough to accommodate both a pool and a backyard recreation space such as a patio for entertaining.”
Sometimes it pays off to not believe every myth you hear.
Latest Stats on the Vancouver Housing Market
For further information please feel free to contact myself at Leo@SavinoRealty.Com or on my direct line at 778.233.8373.
A Look at the Lower Mainland's Market for August 2012
The housing market: How we got here
A great look back into the development of Greater Vancouver's housing market over the last 40 years by By Marty Douglas
"I was listening to talk radio on my commute to work and the half-hour segment was concerned with renting versus owning. The panellists were the president of the Greater Vancouver Real Estate Board and a producer with the radio station, who happens to be a committed tenant. Quite frankly, as the discussion developed I found myself siding with the tenant.
On the call-in segment of the session, one caller lamented the dearth of assistance programs for first-time buyers. He particularly singled out the IHOP program of the seventies. Now before you start to write to REM’s editor, I know the International House of Pancakes wasn’t supporting homebuyers – but it made for a good laugh. At least in my car. On my commute. Alone.
Presumably he meant the AHOP or Assisted Home Ownership Program created by a federal government that just couldn’t resist jamming housing down the throats of Canadians so we could emulate the USA and become the best housed nation in the world. My advice: Be careful what you wish for.
Whether it was fixed-rate mortgages or subsidized payments, folks lined up to buy because they’d be fools not to. Waiting lists trailed from desk drawers. With five per cent down, in some cases provided by sweat equity, and house prices limited in my community to the mid-20s and then 40s towards the end of the decade, people were counting on equity gain at the end of the five-year term. Didn’t happen.
Sound familiar? Sound like the housing crisis in the USA today? When folks had to relocate for work or lost their job, a glut of housing came on the market and subsequently followed the foreclosure path. Mortgage insurance companies had so much inventory, they were at risk and certainly could have flooded the market. I recall MICC owned most of Fort St. John.
It was not unusual for listing salespersons or bank managers to find house keys dumped through office mail slots. I recall one house stripped of its plumbing and shag carpeting as the departing owners desperately sought to regain something of their equity and exact revenge.
To the survivors, equity gains did come. But timing is everything. Chart 1 shows a summary of average house prices every fourth year in the Comox Valley on Vancouver Island beginning in 1977 at $42,000. By 1981, $82,000.
Then, oops! Nothing like world events and government policies to ruin a plan. Wage and price controls, Trudeau’s National Energy Policy and 21 per cent interest rates followed. By 1985, buyers saw prices drop to $58,000, a 29 per cent decline in price. (Compare that to today’s forecast, courtesy of Royal LePage, of declines in Vancouver of six per cent. Imagine your five per cent equity against that price drop. The phrase ‘underwater’ had not yet been invented.)
But by 1989, prices were off and running again to $80,000. Unfortunately, there wasn’t a bell to signal the bottom – or the top – of the market. Apparently, the time to buy was between 1985 and 1989 because in the next four years prices reached $140,000 in 1993 and then $157,000 in 1997. But guess what. Peak housing. And still no bell!
By 2001 the average price in the Comox Valley had slipped to $143,000, a nine per cent decline. Time to buy again? You betcha. The average price soared to $253,000 by 2005 and $337,000 by 2009, more than double in eight years. Today, in 2012, our average price is $353,000 and if you had purchased and stayed in the same home for those 35 years, your equity gain would be a modest 740 per cent. Mind you, the long green shag and canary yellow appliances with matching fixtures are likely a tad shop worn. And the non-slip daisies in the bottom of the tub?
Hey, they were kind of cute!
How did this happen? Interest rates, two-income families and divorce.
Matching the rise over time of housing prices was the almost lock-step decline in interest rates. From the double digits of the ’70s and ’80s, decade by decade, rates declined, slipping below 10 per cent in 1995, never looking back, to our posted rate of 4.99 per cent today – and we know significantly lower rates are available.
Pop quiz: If the cost of borrowing is lower, you can borrow (a) more or (b) less? And so we did. At the same time, someone in banking suggested all of spousal income should count towards mortgage qualification. What the heck, the baby was almost walking at 12 months, day care abounded and many spouses returned to work.
Cars, boats, vacation homes and bigger screen TVs followed until one spouse got a little tired of watching Extreme Bass Fishing and suggested the other take a hike. Not together. And they kept the TV. And the house. Not that they didn’t deserve it.
And so we reduced our household size dramatically and needed to build – condominia – and plenty of them. Immigration to a better country and inter-provincial migration following the job markets fuelled local demand. Developers have responded to demand. According to some, that response is now approaching saturation and another decline in prices is likely. Peaks and plateaus, peaks and plateaus. All we know for sure is current prices are likely on a plateau in many areas of Canada. We know it’s flat. What we don’t know is how far it is across."
How The New Canadian Mortgage Rules May Affect You
Canada's decision to further tighten mortgage rules to cool the domestic housing market will likely further slow revenue growth at the country's big banks, although some lenders were quick to welcome the changes on Thursday.
Designed to put the brakes on soaring Canadian personal debt levels fed by rock-bottom interest rates, the new rules should slow the issuance of new mortgages, adding to the challenge of slowing loan growth that is already impacting their core domestic branch-banking businesses.
"It will affect the banks, but their lending has (already) been tightening up," said John Kinsey, a portfolio manager at Toronto's Caldwell Securities.
Thursday's announcement was the fourth time in four years that the government has tightened lending rules, mindful of the lessons of the U.S. housing crisis and fears that Canada may be primed to go through its own version.
Effective July 9th 2012, borrowers with less than 20% for a down payment will no longer be able to apply for the current 30yr ammortization period, instead the maximum will be only 25 years. This will make monthly payments more but it will allow borrowers to build up equity in their home faster and pay their mortgage off sooner.
In addition, home owners will only be allowed to access up to 80% of the equity in their home as opposed to the previous number of 85%.
Two more changes that my be on the very near horizon is that the maximum high ratio mortgage will be capped at $1 million and the maximum debt service ratios will be 39%, currently we can access up to 44% in some cases.
If you are considering buying a new home or appyling for a mortgage sometime in thenear future please feel free to contact me for a free copy of my Buyer's Guide to Success.
According to condo king Bob Rennie there's no bubble to be seen in Vancouver...
Yesterday, Bob Rennie of Rennie Marketing Systems gave his annual key note speaker address to the members of Vancouver’s Urban Development Institute – a non-profit association of the development industry with over 600 corporate members involved in all facets of land development and planning including: developers, property managers, financial lenders, lawyers, engineers, planners, architects, appraisers, real estate professionals, local governments and government agencies. The theme of Mr Rennie’s talk was the ever-present spectre of a looming real estate bubble in our city. A specialist in marketing pre-sale condos, he denied that there is a bubble.
(the following is an article written by Brian Morton for today’s Vancouver Sun)
Bubble? What bubble?
That’s Vancouver condo marketing guru Bob Rennie’s take on concerns that the region’s real estate market is headed for a meltdown because of sky-high prices.
“It’s not a bubble,” said Rennie, director of Rennie Marketing Systems, in an interview following his keynote address to the Urban Development Institute Thursday.
“With the 80 per cent of the [condo] market that traded in [Metro] Vancouver last year, you only needed a household income of $52,800 to purchase. That’s not a bubble story.”
Rennie, who spoke to a full house about the state of the Vancouver property market, said aging baby boomers with billions of dollars in equity will become a much greater force in the condo market as they increasingly downsize from expensive single-detached homes, and put money aside for their children.
He also noted that the number of people between 55 and 64 will increase 38 per cent between 2009 and 2018, those between 65 and 74 will increase 56 per cent, while those between 35 and 54 will only increase by 4.6 per cent.
Because of that, he said, developers should shift their thinking into providing more larger one-bedroom condos to accommodate the downsizing boomers.
“I believe the leaner, meaner baby boomer is the game changer,” said Rennie. “Baby boomers are sitting on $88 billion in equity in Greater Vancouver and they’re looking at their retirement years. That equity will be freed up over the next 15 years [and] when they sell their home, they’ll buy down and help their kids.”
Rennie said there were about 19,000 condo sales in Metro Vancouver in 2011, and that while the average price for 80 per cent of those condos was $315,000, the overall average price was $427,000, which required an income of $66,000 to finance.
Rennie noted that proximity to transit is paramount for today’s homebuyer.
“In the ’70s and ’80s it was location, location, location. In the ’90s through mid-’2000s, it was timing, timing, timing. And from here forward, it’s transit, transit, transit.”
He also said that planning should be conducted more on a regional basis in order to make homes more affordable.
Meanwhile, Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C., said he also doesn’t believe there’s a real estate bubble in Metro Vancouver, largely because there’s not an explosion in housing starts – typical for real estate bubbles.
Somerville said that while the affordability numbers have been skewed by the higher end parts of the market – “there were double-digit increases in Richmond, Vancouver, Burnaby and West Vancouver, with single-digit increases everywhere else” — the region is still very expensive compared to other cities in Canada.
“Compared to other cities, that income [$52,800] gets you a house. Here, it gets you a condo. That means we’re expensive, but that’s the reality of what we are.
“It’s still an expensive place to live, but it’s not unaffordable. You’ll end up smaller and further away from the core.”