30 to 35%. James you are being very optimistic! Housing will fall at least 50% from the peak in Vancouver, and then may flat for years to come. As a potential buyer I would never take the advice on market conditions from the President of the Realestate board or a Realtor. Apprently to to them its always a good time to buy.
David - This is my personal opinion and we will find out later why home prices will not fall so much as to the 50% level. I posted sometime back in November 2007 that home prices in Greater Vancouver were too high. At that time, I felt the housing market wold correct by 30% to 35%. Home sales for the Greater Vancouver market dropped significantly in June, 2008. The price drop so far is around 12% to 15% and there will be further price erosion next years.
Meanwhile, rental rates have gone up over the past 5 years by about 30% to 35%. An old 2-bedroom apartment that rent for $750 in 2002 is now renting out at $1,000 to $1,050. Similarly, an old 35 years old 1,600 sq ft split-level home that ranted out at $1,250 in 2002 is commanding a $1,600 to $1,700 price tag. If you look at the support from renters, and economic values for homes around us, a price gain of 30% to 35% from the 2002 level will bring us close to the trend-line as mentioned in my November post.
Will the price drop pass the trend-line? Maybe, but at this point in time my opinion is that the price correction of 30% and 35% is consider reasonable. If you look at my post for Seafair home prices, and accept the average home price there for 2007 and early part of 2008 to be around $600,000, a 30% to 35% drop in price will result in the home values there at $390,000 and $420,000.
At these price levels, these homes are within the reach of more buyers. I am quite certain investors and home buyers will buy these homes. There are still a lot of liquidity available from home owners who bought their homes in the 1990s and early 2000s.
James
In regards to rental rates. You are correct they have risen the last few years but are now falling as more and more investors pull their homes out of the difficult housing market, and have no choice but to try to rent it out. It remains to be seen how long they can continue to rent out their unit because most will barely cover their mortgages. Also the slowing economy will bring down everything.
Considering the average wage and salary in Vancouver the 30 to 35% drop in housing simply is not rational. Housing in Vancouver the last few years have gotten way out of fundementals that 30 to 35% simply will not be enough to bring it back or closer to market equilibrium. in fact housing in some areas of Vancouver may fall 70%. Just as prices can be irrational on the way up, prices can be irrational on the way down.
Prices may drop below the trend-line if the situation gets more desparate. When adjusted for inflation, home prices will find support at prices 30% to 35% below the peak for 2007/2008. No doubt wages have not increased significantly over the past few years. The market do have large number of trade-up home owners and large inflow of funds from overseas for real estate investments in BC.
As for rental rates, new 1 bedroom condos in Richmond at one time could be rented out at $1,400 to $1,500 a month. Obviously, such new condos will likely be getting a lower rental rates like $1,300 when more supply of new condos are released to the market.
Some high price homes in Vancouver could take a bigger hit. But, when average or median home prices are being used as normally the case, I expect home buyer interest will return. This will take up to 3 years 5 years to stabalize. You can view Brain Ripley's real estate price charts here on his analysis of the housing market in Canada.
Not sure if you know the current rental market conditions in Vancouver and Richmond but there are many 2 bedroom condos going for $1400 to $1500 in Richmond. In Yaletown where I live you can get 1 bedroom condo for $1300 to $1400, and I highly doubt Richmond has the same rate for 1 bedroom condos.
Here are some examples I found on craigslist:
Dec 6 - $1450 / 2br - Richmond 2 Bedrooms Condo (with Big Garden+Indoor Pool) - (Richmond)
Dec 6 - $1500 / 2br - Richmond Brand New 2 bedrooms 2 bathrooms Avail Now - (Ferndale)
Dec 6 - $1500 / 2br - 2 Bed - 2 Bath - Den - Balcony - Garden View - (Richmond) pic
Dec 6 - $1400 / 2br - 2bedroom 2bathroom )the jade 4 year old condo - (richmond)
Dec 5 - $1400 / 2br - ****5880 Dover Cresent **** - (Richmond) pic
Dec 5 - $1400 / 2br - & Den or 3rd br "Red Condo" @ Central Richmond - (Richmond) pic
``inflow of funds from overseas for real estate investments in BC.``
Right now we are going through a global financial crises. I find it highly unlikely that foreigners would be buying up real estate investments in BC when their own market is in considerable amount of turmoil. Sure there maybe ultra rich foreigners who can afford to buy up that penthouse in Yaletown but really how many of them are there. I work with people in the restaurant industry, mainly the independent restaurants.
I can assure you from what I hear from the owners that their businesses are VERY slow. Simply put people do not have the money to eat out as they once did before. Our economy is definitely slowing down just like the US and the rest of the world. People in this type of economic climate will NOT want to trade up as you have stated.
Our realestate market will follow the US but not like NY city but more like Las Vegas, Maimi and Phoenix. I predict prices when adjusted for inflation could fall back to 2002 or even 2001 levels.
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