I attended a presentation and discussion with Cameron Muir, prominent Economist on BC Real Estate. Cameron stressed that our current market is a bit of an anomaly because while our Real Estate fundamentals, (interest rates, vacancy, unemployment, demand, immigration, ect.), are very strong, our market has slowed down considerably.
Cameron explained that with the financial crisis in the US Stock Market and the trickledown effect it has on Canada as well as the rest of the World, cumulated with the sub-prime mortgage problem in the US, consumer confidence, a very important factor in the emotional market of real estate, is currently as low as it has been since 1982.
The good news, however, is that we have NO sub-prime mortgage problem, in fact, our arrears (mortgages where mortgagees have missed 3 consecutive payments and are on the verge of defaulting) are at an all time low! Also, interest rates for mortgages are now at 4%, and despite what the papers suggest, banks are still willing to lend, including at sub-prime rates to qualified buyers and with as little as 5% down for first-time home buyers. Currently, I would recommend a floating rate mortgage as with a looming 1-2 year recession, they are likely to creep down further, TD bank offers exceptionally mortgage options.
October has seen increased market activity relative to August and September, savvy investors are beginning to see the opportunity, which I can assure you the Buyer there definitely is! Look for houses that have been on the market for over 6 months, houses that are vacant and the owner is motivated to sell, houses or developments where the developer is motivated to sell to clear his financing debt, and condominiums where people got into pre-sale contracts 2-3 years ago, the tower is now complete, but they don't have the cash to close and would rather sell the apartment at a loss than forfeit the sum of their down payment and the monthly payments they have been paying over the past 2-3 years.
The current market is a Buyer's market, so if you’re trying to sell your house to capitalize on the peak of the upward cycle, it's too late and you’re going to have to accept what the market is giving due to increased inventory- I recommend you enjoy the winter in your home and try again in the summer.
If you are a Buyer looking for your first home, or looking to upgrade, or looking for your dream home in that dream neighborhood, now is the time for you to go shopping. I am seeing AAA real estate selling, and it will continue to sell, look around your neighborhood and see what kind of houses aren't selling- the ones in need of TLC or with serious negative features (train tracks, highway noise, ect). Prices have fallen, the time-lag in real estate will take 6-9 months for these statistics to reveal themselves but today you can get 15%-25% off asking prices, prices equivalent to 2006 when real estate was a sure thing, and be thankful you didn't buy 8 months ago!
One fantastic opportunity I see presenting itself for investors, house-flipping is dead by the way, is too snatch up hot offers from desperate vendors, whether that be downtown condos or West Van homes, and rent the thing out! Rent rates are at all time highs and forecasted to grow, and mortgage rates are near all time lows and forecasted to drop- what this means is that you can become one of those people we all envied back in 2004-2006 who had tenants paying off their mortgages! So buy real estate, and accept $2000-$10,000 per month rent and cash in on your asset in 2011- it will be the best Bond you ever invest in!
So what do the experts predict? Cameron Muir sees rents increasing and incomes increasing to make BC home prices more affordable. He sees a 2 year recession for our economy as a whole so I wouldn't rely on your dead stocks to shoot up anytime soon, and he predicts the housing market to level out steadily in the Spring with increased home prices coming after The Olympics, when consumer confidence is back on track and newspaper editors stop the attack on Real Estate. He predicts a 15% decrease this year and a 5% decrease next year.
In conclusion, the catastrophic crash of the real estate market which seems to be the talk around every water cooler and Starbucks in town, is not going to happen. In fact, the worst has happened, and we are now in a time where savvy investors can capitalize, just ask Warren Buffet or Jimmy Paterson! Expect a 20% decline over 2 years, not a 45% crash like your RRSP!
Lastly, I read an article in The Vancouver Sun that made a lot of sense regarding home ownership. Real Estate is a hot topic in Vancouver that gets a lot of press and attention, so while today there is no doubt multiple offers, and quick-flips are no longer, we must not forget that buying a home is the single largest purchase in a person lifetime, a purchase made for a place to call home and grow a lifetime of memories, not an investment. So don't look at you master bedroom, kitchen, and living room as a Stock, Bond, or RRSP. Forget the short term fluctuations because if you are planning on living in your home for 5 years or more your asset will appreciate and you can appreciate it!
Stuart Bell
Prudential Sussex Realty
stu@stubell.com
604.562.0532
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