Recently, a lot of people have been panicing about the horrific declines in the stock market and the apparent downturn in Vancouver's real estate market. Everyone is talking about both and wondering what to do. It seems that with respect to the stock market, most analysts are saying to hold tight as over the long term everything will be fine. This seems like it might be a logical position, given that once the "crash" has happened, its kind of late to be taking action I would think-unless one believes that there is still a long way down to go....From what I have been reading and hearing, in the stock market the fall has already been very significant so the worst may be close to over which supports the argument that it may be time to hold and not sell.
In the Vancouver real estate market, in the grand scheme of things, the prices are still doing pretty good despite the fact that we have moved from a market which was very favourable for sellers into one that now works more in the buyers' favour.
I don't follow the stock market but I know with real estate, my approach is not to worry about selling at the absolute peak or buying at the absolute bottom as it is next to impossible to know when those two states will occur....and I generally believe that greed kills. However, when I have been thinking about disposing of a particular property, AND the market starts heading downward, I would rather sell once it has gone down a bit (like now-which is why I just sold one and am selling another of my investment properties) as the prices are still high and I can buy in again later when prices have gone down more. The fact that I may have made 10% more had I sold a few months ago does not deter me from capitalizing on what is still a market where I will make a good profit on my past real estate purchases. Of course I will keep my principal residence because, while it may always end up being my best investment due to favourable tax treatment, that is not its primary purpose-so unless I find something to upgrade to (and of course I am looking at that option now-for more information on upgrading in this market, see my previous article on this issue) there is no real point in selling-I have to live somewhere and to me renting and paying someone else's mortgage just makes no sense whatsoever-especially when rents are as high as they are here in the Vancouver area.
And where to put ones money when the stock market and the real estate market are both hurting? Well to me that is a very simple question with a somewhat obvious answer: Real Estate! Especially if the market you are buying in is Vancouver.
The last time I made a positive comment on investing in real estate, a reader sent in an email challenging the reliability of what I had said because of course, I am a realtor. For this reason, he assumed I must be biased and espousing an opinion designed to make me money as opposed to provide real advice...well that is not accurate. I really think (and there is a lot of information out there to support this) that real estate is the most solid investment available. Having a principal residence is just a no-brainer. Except in very unusual circumstances, if a financial advisor is not telling you to buy a principal residence before investing in the market (other than maybe maxing out RRSPs) then I think you should consider another financial advisor. Oh and if your financial advisor is showing you stats on the stock market and the real estate market, make sure you are getting the numbers relating to the Vancouver real estate market-not the Canada wide numbers as the real estate market in other parts of the country is not the same as it is here and the Canada average numbers can be very deceiving (not helpful when making decisions as to where to invest). Everyone needs a place to live and if possible, I think it makes good sense to own it and pay yourself each month, building up equity as you go.
With respect to putting your money in the stock market vs. in investment properties, I think the latter is still a safer bet if you buy the right investment properties. As one of my young but very savy investor clients and I were discussing the other day, there are a lot of good deals to be had out there-the market is very favourable for buying as we still have very low interest rates, there is a ton of inventory to choose from, and prices are better than they have been for ages. It is now much more possible to buy a good investment property and maybe end up with the rents covering your payments-and in Vancouver it doesn't get much better than that...
It is really a mystery to me why so many people were dying to jump into the real estate market last year when the market was much less favorable to buyers but now those same people are leary of buying into a market which is clearly a buyers' market...does that make any sense??
Bottom line: At the moment (and in general) I would definitely be buying real estate not stocks!!! But having said that, just as there are currently some great deals in real estate, maybe right after a crash is also the best time to buy stocks...but don't ask me-I stick to buying dirt!
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according to the Wall St Journal-and buy now that the market is slower
Well this article isn't about Canada and our market here, especially in Vancouver, hasn't fallen as much but the principles are strong. I have been telling people now is a great time to buy and that I think that real estate is the best investment going for a number of reasons. This article contains some related comments.....
Here is an article that arose from an interview I did with a Globe and Mail reporter last week...I have got to stop talking so fast as some of the info obviously got a bit confused in the translation!!! The info is not accurate-close though! And apparently the key info for readers of this article is that I am pregnant (which only came up in explaining why I am not currently riding my bike) as that is what all the calls I have received on this have focused on. Hmmmm-it was supposed to be the running, riding, realtor theme. Anyhow, here is the article.....
NOTHING if you are upgrading.....and likely not as much as if your money was in the stock market!
Within the last 24 hours, 2 clients have contacted me about how they were considering upgrading to a better home/location but now they have "Lost" money on their current house. One client is somewhat okay with this given that they recognize that they will more than make that up when they buy up in the market...the other client has unfortunately received "advice from several people" that it doesn't make sense to sell in this market...well I have to ask, just who are these people giving the advice and have they actually made any money in real estate? have they done the math? do they understand the concept of the benefits of upgrading in a down market? Sigh....in my opinion, this type of market is the best type to upgrade in....there are some great deals-here is a snippet of what I emailed one of these clients in response to the clients questions/comments: well there was recently a house in a fabulous location (3300 block of West 5th) that went in the 800s so there are some great deals out there you will likely not really be losing: In theory I "lost" money on a house I had in the 90s-i paid more than I sold it for but I bought into a much better location at a great price-which I wouldn't have been able to do if the market hadn't been down.... it is tough to "lose" if you are upgrading in a down market; it is easy to "lose" if you are upgrading in a strong market...people don't get this so they would rather sell in a high market and buy in a high market, even if in true dollar terms it ends up costing them a lot more if your place would have been $670 and is down 10% say then you "lost $67k but if what you are buying is $750 it would have been 10% higher so you would be saving $75k AND moving somewhere better so its math plus life satisfaction! and the higher up you go, the more likely it has come down a bit more than the lesser priced properties as the market is still heavily fueled by first time buyers who can only afford so much (for more info, see my blog (www.vancouverviews.ca) Aug 25th and 29th-the latter refers to a Smart Money article which I am pretty sure also discusses this issue)
The bottom line is it seems to be simple math; yes Vancouver is expensive; yes the market is slow and prices have come down BUT if one is upgrading, these conditions seem ideal....and the greater the upgrade, likely the more the seller who then buys will be making in dollar terms.....so if one sells what would have been a $500,000 condo last year and now only gets $450,000 then they have made $50,000 less than they would have last year....but if they are buying a house that last year was $1,000,000 and now it is also down 10% (to $900,000) then they have saved $100,000. So if the price difference last year was $500,000 ($1 million purchase minus $500,000 sale) and this year is $450,000 ($900,000 purchase minus $450,000 sale) then they are ahead by $50,000. Hmm pretty good math to me-you can do a nice reno with the extra $50,000! Am i missing something here?????
We have been noticing more and more over the past year or so that almost all of the response we get for our listings comes from buyers viewing our online advertising. We still use print media such as the Vancouver Sun colour ads and the Real Estate Weekly, Homes and Lands, etc (and the Sun does actually get some response) but it is starting to look like these methods of advertising are not worth the paper they are printed on...so in addition to being environmentally unfriendly, they don't seem to get the attention that we would like to see for our sellers' properties.
As most of you know, we are increasingly devoting more and more of our time, energy and money to advertising properties online. Today I received a copy of some information taken from a collention of studies carried out in the past year confirming that this is likely the best way to market a property in order to obtain the highest price in the shortest time. It is clear that just putting a property on the MLS (Multiple Listing Service) is not enough!
According to the research done by the California Association of Realtors, 86% of home byers use the internet to look for a home before they contact a realtor to help them and before they purchase a home. The Association predicts that online advertising will become the number one way of selling a home in the near future. The Association retained comScore to look into this issue further. comScore analyzed results from over 1500 internet users who planned to be involved in a property transaction within the next 6 months and over 700 other internet users. The study determined that there are 67 million people actively engaged in real estate activities online; the typical online real estate consumer is 45 years old; and half of all online real estate consumers are between 35-54 years old. In addition, 72% of the online users currently own real estate. Almost one half had used websites to view property listings. The conclusions coming out of the study are directed at assisting realtors in reaching this huge segment of the population using the internet for their real estate transactions. Obviously realtors need to reach these people to market available properties. The study concluded that it is important to: -blog (here we are!), -have a presence on many websites as users have their own favorites (see below for a partial list of sites you can find our properties/us on), -work on search engine optomization (we have retained 2 leading companies, Ubertor and REACH'd to assist us in this regard and of course we work on our websites daily) -provide information about the real estate market in general (as opposed to just providing information about listings and sales). We do this through our sites and also when articles we write are picked up by other sites such as the Vancouver Observer.
Fortunately, we are doing everything recommended by the study and it does seem to work! While I personally love perusing paper news, advertising, etc., the internet is here to stay so we will continue to increase our use of this valuable way of disseminating information!
List of sites we now use (please let us know if we are missing some good ones!)
Okay-I really can't take it anymore...last week I was collecting articles from the Globe and Mail, the Vancouver Sun, etc and listening to all of the commentaries on CBC radio (and pulling over on the side of the road to take notes). I had planned to go through them all to comment specifically on what is happening and what people are saying-but its too much. Every single day last week there was more than one media item on the issue...most saying the market is crashing, bubble popping, etc. What most of these articles failed to comment on is why there is a slowdown-and how insignificant it has been to date. It also seems to me that the changes are being primarily driven by the media! The other thing that is neglected, is the benefits of this market-many of which continue for the not just buyers but also sellers.
I try to read everything I can get my hands on from as many reputable sources as possible, on what is happening in the market here and throughout North America, and to a limited extent, around the world (apparently there is a lot of money to be made in real estate in Dubai at the moment!). From what I have been reading-and observing-in the Vancouver market, we are having a "correction" but even that seems to have little basis in economic drivers- the usual cause of these things. While the economy is slowing slightly, significant causes of the real estate market changes seem to include public fear due to what is happening in the USA and media exageration of what is happening here.
In Vancouver, we still have near record low interest rates making it much easier for buyers to buy; we still have positive population increases and excessively high rents which make buying as soon as possible quite desirable; even with the market slowing, prices for sellers are still very high; it is a great time to be making investments given there is now time to breathe and make decisions about what to buy; it is a great time to sell and upgrade: even though a seller may not get quite as much for their home as they could have at the absolute peak, they will still do well and if they are upgrading, any "paper loss" they have had on their sale will likely be much more than made up on their purchase.
As I have said in earlier blogs, if you would like to discuss this in detail, in particular regarding how the market changes may affect you, please let me know. And for those who think this is just optomistic realtor talk, fyi-I am selling one of my own properties as I write this and upgrading (hopefully!) to a more expensive property...... Patricia
So you think your mortgage payments on Vancouver real estate are high now???? Thank goodness the interest rates are low!
It is funny that I just received this today as I was talking to a couple of people yesterday about the rates back to 1960. I was also explaining that when I bought my first house in the late 80s, it cost me over $1100 per month to pay my mortgage payment on every $100,000 borrowed. So while property values in Vancouver may have doubled (or more) since that time, when you factor in the cost of borrowing and the salary increases over the past 20 years, it may be even cheaper to buy now than it was then.... For those of you who are interested, the mortgage rate chart, going back to 1952 is below. Please contact me if you have any questions on this or any other real estate matter.
Well money laundering seems to now be affecting all of us! Now, even when a client is not paying with cash, we need to take steps to assist the government in dealing with this problem. A lot of our clients are people we have known for a long time...however we are now required to see and record identification details when a client buys or sells a property. Recently one of our team members even had to ask a relative for identification-strange but true. For details on why this is happening, see the article from the Real Estate Board below:
Federal law requires REALTORS® to verify client identity
REALTORS® across Canada are now required to collect personal identification information from their clients in order tocomply with federal legislation.
These new federal laws and regulations took effect June 23, 2008 and are aimed at combating money laundering and terrorist financing activities. As part of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), financial institutions and REALTORS®, among other professionals, must identify customers who conduct financial transactions.
The regulations are enforced by the federal agency known as the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC.
Under the new rules, REALTORS® must obtain, record, and retain the personal information of their clients, including their full legal name, address, date of birth and occupation. To do this, they require a government-issued identification document such as a driver's licence, passport, or residency card.
REALTORS® are to track the amounts and source of funds received during the course of a real estate transaction. The Act also requires these identification records and FINTRAC reports be kept for five years.
"The public needs to be aware that REALTORS® are asking for this personal information to comply with the new federal laws," said Dave Watt, president of the Real Estate Board of Greater Vancouver (REBGV). "The information received will not be used in any commercial way and will not be provided to anyone else except in response to a request from the federal agency responsible for compliance."
If the client is a corporation, that information must include corporate documentation and the names of the corporation directors. REALTORS® are further obligated to ascertain whether a third party is involved in a given transaction.
These new compliance requirements affect even a buyer or seller not using the services of a licensed real estate practitioner or lawyer. If there is a REALTOR® involved in the transaction, he or she must make the best effort to verify the unrepresented private buyer or seller's information.
Also under the new FINTRAC regulations, REALTORS® need to verify the personal information of clients with whom they have no face-to-face interaction. One way to do this is for the broker office to hire an agent in the area where the client is located. That agent must then meet the client, verify the identification of the client, and provide the information to the office actually handling the transaction in Canada.
Yesterday the federal government announced some big changes coming in October 2008. I think these changes could have the most significant impact in Vancouver, given that it is likely the least affordable city in the country…however, having seen the cover story in the Vancouver Sun today, I think it is a bit blown out of proportion. First, I will review the changes and then discuss what the impacts might be. If you will be affected, I would be happy to find out more information for you regarding your particular situation (email me at phoulihan@vancouverviews.ca or visit contact page at www.vancouverviews.ca).
Bottom line regarding the changes: if you need a 40 year amortization period, or are buying with zero down payment, contact me/your realtor right away so we can make sure you have completed your purchase by October when the changes come in!
In a nutshell, as of October 2008, 40 year mortgages and zero down payments will be a thing of the past. Obviously, this will lower the purchase price that some can afford and for others, it could potentially keep them out of the market entirely-but I think the latter situation will be rare. These changes do not come into affect until October so there is still time for buyers to either buy under the current rules or to plan for a larger down payment or to live on less money every month so that they can afford their mortgage payments. It is not clear, based on the information I have been able to obtain since the announcement came out yesterday, whether these changes will only apply to mortgages which are insured or to all mortgages...still waiting for an answer on that. Those whose mortgages are currently amortized over 40 years will be able to continue to have their mortgage payments calculated over the 40 year period until they come up for renewal. Then, if for example the mortgage had a 5 year term, on renewal at the end of the 5 years, the amortization would be reduced to 35 years-this is not a change to the current policy. So this should not affect one’s ability to make mortgage payments (and I would be one of those 40 year amort’ers so I am happy with that!). If more information comes out in this regard, you can view it at www.vancouverviews.ca or you can sign up at our website to receive the blog when it comes out. See below for the government’s news release on the changes. As I mentioned above, the changes are planned for October. Please contact me with questions.
Before we get to the government news release: my comments on the article which is front page Vancouver Sun news…hmmmm….I have to say that, it is a bit over the top. I know they are trying to sell newspapers but really! I am trying to find the stat on the percentage of buyers who actually use 40 year amortizations and zero down payments-from my experience I don’t think that number is very high. AND, the 35 year amortization option will still be available AND of those who choose 40 year amortizations, it is likely that most could afford the 35 year payments and still qualify for their purchase. So saying that this change could really cool the real estate market-hmm, not likely on its own!
As promised, here is the federal government news release on the changes-please contact me if you have any questions.
The Government of Canada today announced adjustments to the rules for government guaranteed mortgages aimed at protecting and strengthening the Canadian housing market. The new measures include:
• Fixing the maximum amortization period for new government-backed mortgages to 35 years; • Requiring a minimum down payment of five per cent for new government-backed mortgages; • Establishing a consistent minimum credit score requirement; • and Introducing new loan documentation standards.
Today's announcement marks a responsible and measured approach by the Government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.
The new limits are planned to take effect October 15, 2008. This would allow existing mortgage pre-approvals with the common 90-day duration to be used or expire. Certain exceptions would also be permitted after October 15. The Government will work closely with all stakeholders to ensure timely and effective implementation of these measures.
As these measures relate only to new, government-backed insured mortgages, Canadians who already hold mortgages will not be affected by this announcement. The measures announced today will build on the strength of Canada's housing market. According to the International Monetary Fund, the increase in house prices in Canada is based on sound economic factors such as low interest rates, rising incomes and a growing population. A recent Statistics Canada report concluded that home ownership is at record levels, with over two-thirds of Canadians owning their own home.
Mortgage arrears—overdue mortgage payments—have also remained low. In recent years, the percentage of mortgages in arrears for three months or more continues to be at low levels not seen since 1990.
Office Phone: (604) 263-1911
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This blog addresses issues of interest primarily to those who are active in or thinking about getting into the real estate market in Vancouver British Columbia and surrounding areas
Patricia Houlihan
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