There is a lot of a B.C. housing bubble talk again: usually
from the same sources that have been forecasting a crash in the housing
market for the past 10 years as prices continued to climb and sales continued
to increase. It always makes for scary headlines and a topic for talking
Now the slant is that higher interest rates will kill off sales and the long
predicted fall in prices will finally happen.
Don't count on it. On virtually any measures, this spring offers some of the
best home buying conditions in years - in some markets. In fact, if you are
not investing in the housing market this spring you may be missing a great
Look at mortgage rates: Even if rates rose 2% to 3% overnight, which
is not likely, mortgage rates would still be near the lowest point in recent
history. Right now, top mortgage brokers like Mortgage Alliance have
five-year rates at 3.24% (the posted bank rate is 5.24%) one-rate rates at
2.74% and a variable rate 15 points below the 3% prime rate.
Look at housing prices. They are down from the peak in most of Metro
Vancouver. If you are buying outside of major cities, current prices offer
very good value.
Condo example: MLS: V932466 2 bedroom condo in Mallairdville,
Coquitlam (Evergreen line coming) for $164,500.
Detached example: MLS F1203862 4 bedroom house with 2-bdrm
(unauthorized) basement suite, North Surrey. 7,500 sq.ft lot. Price:
Look at the inventory. There are 25,000 residential properties for
sale across Metro Vancouver and this number will likely increase this month
as the spring selling season gets into full swing. There are also about 8,500
new high-rise condos hitting the market and developers are offering presale
incentives for first buyers in.
Examples: Onni has cut prices 3% in a new Parkside tower in New
Westminster for first buyers. Salient Group is offering 100 new condos
priced under $299,900 at its new 22-storey tower in downtown New
Look at the rental vacancy rate: It is 2.5% or lower in most Metro
Vancouver markets, providing rental investors with a stable market for
Look at Canada: International real estate investors see what most
Canadians don't appreciate: we have a stable banking and political environment,
a steady real estate market, natural resources the world needs and few social
tensions. That is why immigrants are buying - and will continue to buy - real
estate from Vancouver to Toronto.
Look at mortgage default: More than 99% of Canadian homeowners are
paying their mortgage. Our banks are not dumping homes onto the market, so
there is no downward pressure on prices.
Look at the income-to-price ratio: Another misleading statistic is
that in major markets, like Vancouver, the average price of a home is now
10.6 times the income of the average Canadian. But, as economist Bryan Yu
of Central 1 Credit Union explains, this ratio is out of whack because
Vancouver area average home prices - the most widely reported - are skewed
higher because of expensive homes in three markets that represent 37% of
sales and ignore the Fraser Valley. As we have pointed out before, drive
half-an-hour south or east from the West Side or Richmond and you can find
homes priced nearly 50% less. "Correcting for geographic inaccuracies
to better match the economic region (which is consistent with income) yields
a significant lower price and hence price-income-ratio," Yu said.
As well, median incomes are not an accurate measurement in home buying.
People on fixed incomes don't buy homes. And buyers are often leveraging from
a home they are selling. A $700,000 house is more palatable when a buyer has
just cashed out $300,000 in equity for a down payment.
Look at consumer debt: The warnings about rising debt ratios must also
be challenged. The Governor of the Bank of Canada is worried that the average
personal debt ratio is now 156% in Canada. This means a household making
$100,000 per year, owes $156,000, two-thirds of which is mortgage debt. Why
is this so bad? At an interest rate of 3% or even 5%, the amount needed to
service the debt is manageable. Most people do not pay off their mortgages in
Major Point: Take a deep breath. Meet with your lender or
mortgage broker to figure out what you can afford before you start looking
for an investment. It may be a good time to buy, but you need to buy smart,
select a good area, a quality realtor, developer and make offers.