Vancouver Real Estate – To Buy Or Not to Buy, That Is the Question

To Buy or not to Buy?

Is now a good time to get into Vancouver’s real estate market? This is the perennial question. People who watch regional trends see conflicting messages. The Real Estate Board of Greater Vancouver (REBGV) suggests that Vancouver is in a buyer’s market, while the Canadian Centre for Policy Alternatives (CCPA) argues we are in a housing bubble. With property sales slowing, lending rates increasing and housing prices historically high, the question of whether or when to purchase a home burns even stronger. The dilemma on many potential buyers minds: buy now and risk a significant drop in home values paired with an increase in interest rates, or wait and risk watching prices climb out of reach.

Anatomy of a Bubble

The CCPA recently published a report entitled Canada’s Housing Bubble: An Accident Waiting to Happen, which warns the current situation is unsustainable. The report warns that a return to historic norms in lending rates would put buyers into an untenable situation. Bubbles emerge when housing prices outpace inflation, household income and economic growth. According to the CCPA, factors that typically contribute to a bubble are low mortgage rates, low availability of housing stock, easy access to credit (low rates) and immigration. If we are able to examine these factors, we can start to make informed predictions.

Suggesting a milder scenario, Benjamin Tal, CIBC’s senior economist has posited that a 5-10% price correction could be in the works for the Canadian market over the next 8 months, while TD Canada predicts a 2.7% drop in home prices in 2011. Tal said that a violent market correction requires a trigger, such as the U.S. sub-prime crisis or exceptionally high interest rates.

Factors Suggest Slowed Inflation

Current mortgage rates are unprecedentedly low. Bank of Montreal recently decreased its popular special five-year fixed rate to 3.59%. Meanwhile, the Bank of Canada (BOC) has incrementally ramped up its trendsetting overnight lending rate, taking advantage of GDP growth in order to slow borrowing. It was raised from 0.75% to 1 % on September 8th, the third time in four months. This has caused the Big 6 banks to increase their variable rates a point to 3%. The increased rate, along with the activation of the HST is slowing purchasing activity. The increases are small enough that they will not cause unbearable stress on most borrowers, but they will create more caution amongst buyers, which will slow inflation. This is good.

Interest rates have actually decreased slightly to 1.8% since February’s one year high of 2%. While Canada’s GDP growth of 0.5% quarterly was not as high as last quarter’s remarkable performance of 1.5%, it is still comfortably within the upper range of the 4 year mean of 0.24% quarterly growth. So while prices are high and lending rates are low, gradually increasing rates, healthy GDP, lowering inflation, prices indicate that we are not in a bubble.

Signs of a Buyer’s Market

The real estate market has gradually softened since the April 2010 climax, and though prices have declined slightly since that month’s record-setting benchmark of $593,419, at $539,600 they are still relatively high when seen from a long-term historical perspective. In fact, the period from March 2009 to April 2010 was one of the highest selling periods in Vancouver Real estate, so within that context, a decline in prices is a normal fluctuation, and a trend toward the baseline.

Stabilizing Factors

A dramatic price correction in the Greater Vancouver real estate market is unlikely to occur. It is one of the world’s most desirable places to live and geographical factors limit massive development, typically causing properties to grow or keep their value. Other factors currently keeping home values stable are continued foreign interest and a slowing new housing stock into the market.

Considerations for Buying

So where does that leave you if you want to buy a home in the Vancouver market? There is no predicting how the market will fluctuate on a day-to-day basis, but the signs indicate a modest and short-lived slow down. You can always choose to wait, and the reasons for doing so are both many and well-founded. Ultimately, the sooner you get in, the sooner you will own more of your home. If that is the path you choose to take, be conscientious of these important considerations:

  1. Aim for what you can afford. Be realistic about what monthly payments you can afford to determine your price range. Visit your bank or qualified mortgage broker to get an accurate assessment of your finances. If projected payments are close to what you currently pay for rent or existing payments, then you can probably afford the mortgage. Consider what you may be paying if rates go up and be conservative about projecting your income.
  2. Think carefully about the kind of mortgage you will take out. Will it be a floating rate, or some species of fixed-term mortgage? There is enough to consider on this topic for another entire article.

Nick Boudin is a real estate writer for eCo Realty, a residential and commercial brokerage in Vancouver, BC. To get in touch with a Vancouver real estate professional, browse residential properties or read more articles, visit http://ecorealtyinc.ca.

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