Rent or Buy in Vancouver?
I had a recent facebook debate with my peers who were dead set to Rent-For-Life, and that at today's prices it would be foolish to Buy Real Estate in Vancouver. While I own Real Estate and I deal with the sale and purchase of Real Estate daily, I was motivated to do some research and make certain conclusions.
As a Realtor, I have expertise in the Vancouver Real Estate Market. Through education, training, and experience. I also know that Vancouverites have very passionate opinions about our real estate market, and I believe this is due to the simple fact that every person needs a place to live, and whether you rent or buy, it is really expensive in Vancouver.
The following is my review of when a person should rent and when they should buy, and if they have the option, why Buying is better.
The benefits of renting are clear: no commitments, fixed costs, no large lump payment, easy mobility, more affordable, and no exposure to potential market downturns. For these reasons, I think renting is the only way to go for people who get up and move a lot, for people new to a neighborhood, for people who find it financially overbearing to come up with a large enough downpayment, for those wanting to live in a lavish lifestyle at less cost than owning, for those who prefer other investment vehicles such as Stocks or Bonds, and for those who inherently believe dooms day is coming and a mansion in West Vancouver is going to depreciate like those lining the fairways of Private Country Clubs in Scottsdale, Palm Springs, and several other depressed markets in the US.
(Note lending practices in the US are far less stringent than Canada, and the fact that it is very difficult to obtain a mortgage in Vancouver, is a testament to our responsible lending systems and re-assurance a Foreclosure deceased market like in the US will never destroy Canadian Real Estate)
The first several reasons to rent apply to the majority of the population in Vancouver, hence our extremely low vacancy rates and high rent rates (which are forecasted to grow), that attract the large amount of Investors seeking returns who view Real Estate as an investment vehicle, also affectionately referred to as "speculators" by disgruntled tenants.
Those who fear a doomsday collapse in our market could be right, there is no crystal ball, but in my professional opinion Vancouver Real Estate is the most Rock Solid investment around. Simple Market Fundamentals are all strong: low interest Rates, Growing Population, rising incomes/ increasing minimum wage, limited Supply, increasing Global demand, and a growing job market with low unemployment rates.
It all looks good barring a 1980's like interest rate spike where many Vancouverites were paying 20-22% interest rates on their mortgage! (Today a $500,000 loan = payments of $1,650 per month, whereas in 1980 the same $500,000 loan = $9,171.12 per month)
Check out the chart below (VancouverCrash.com) and see how interest rate spikes in 1982, 1993, 1996, and 2003 correspond with dips in the average home prices in Vancouver in the second chart. Also note that the trend, due to lending improvements, technologies, globalization, and pro-active governing is downwards, suggesting while interest rates will continue to vary, they may dip deeper and will likely never spike to what we saw 30 years ago.
It all looks good barring a 1980's like interest rate spike where many Vancouverites were paying 20-22% interest rates on their mortgage! (Today a $500,000 loan = payments of $1,650 per month, whereas in 1980 the same $500,000 loan = $9,171.12 per month)
Check out the chart below (VancouverCrash.com) and see how interest rate spikes in 1982, 1993, 1996, and 2003 correspond with dips in the average home prices in Vancouver in the second chart. Also note that the trend, due to lending improvements, technologies, globalization, and pro-active governing is downwards, suggesting while interest rates will continue to vary, they may dip deeper and will likely never spike to what we saw 30 years ago.
In the Graph Below (Real Estate Board of Greater Vancouver), we see how prices in Vancouver have rose since 1977. Note how drops in prices and the general lag through the eighties and nineties correlates with high interest rates.
The other critical perspective is across Canada, lets look at the inflation adjusted average Canadian home prices chart (VancouverCrash.com). You will see that Vancouver has historically been the most expensive place to live in Canada and compared to Toronto, Montreal, and Calgary the increase since 2000 is nationwide and Vancouver is on par with the rest of Canada and relatively affordable compared to 1980. The chart below (VancouverCrash.com) suggests that Calgary and Greater Vancouver are overpriced.
Finally let's look at percentage of after-tax income needed to make payments on a mortgage with an amortization of 25 years with a 20% down-payment (VancouverCrash.com). You will see that Vancouver is the most unaffordable, but keep in mind Vancouver is also the most sought after by foreign direct investment which does not account for income, that Vancouver is the most dense, and that the historical norm for the past 35 years displays Vancouver as always being the most unaffordable. Vancouver is more unaffordable than 99-2005 but less affordable than 1981, and 1991-1997.
In conclusion, the historic driver for our Real Estate Prices is an inverse relationship with interest rates, and the 2 trends are moving in opposite directions. Evidence suggests Vancouver is not a bubble city, as it is in line with the rest of Canada based on statistical analysis from Royal Lepage Statistics, Statistics Canada, and The Greater Vancouver Real Estate Board over the past 40 years.
As a lifelong resident of Vancouver, I believe the reason we are at historic highs, and the reason we have always been the most unaffordable city in Canada, is because Vancouver has the "It" factor. A city center envied by city planners across the world, a natural scenery attracting Tourists and Immigrants by the masses, a global position with amazing transportation, a temperate climate, excellent school system, and a safe, intellectual, community driven way of life. It appears the demand for Vancouver is infinite, and while many young Canadian families may have to move to a great Canadian Suburb such as Kelowna, Victoria, or Langley, where house prices drop significantly, even in an economic downturn tens of throusands of people are willing to pay todays prices to get their hands on a piece of Vancouver Pie to enjoy Robson St, Stanley Park, Kits Beach, GM Place, Fine Dining, World Class Resorts, the Northshore mountains and on and on.
While no one has a crystal ball and Real Estate has been through periods of downturn, for me there is no question Vancouver Real Estate will continue to climb in the long run, so if you have the option too Buy, here's why you should:
Great Investment (Pay down your mortgage, not your landlords or have tenants paying yours), Build Equity (Get financed, grow your business), Pride of Ownership (add value, grow roots in the community), a Mortgage is the best Savings Account, retire Land Rich because with todays costs of living your bank account may not be, and sleep well knowing that your hard earned money is invested in an asset you can touch, an asset you can rent, and an asset you can enjoy!
For all your Real Estate Needs or Inquiries please write stu@stubell.com or call 604.562.0532.
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