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Making sense of today's housing market

In today's Vancouver Sun, the current housing market situation in British Columbia was aptly addressed by the president of the Real Estate Board of Greater Vancouver, Dave Watt.

Click here to read the full article here.

Since May, residential home prices have declined 12.8 per cent, resulting in an 8.3-per-cent year-to-date price reduction for detached, attached and apartment properties across Greater Vancouver. Further erosion in home prices can be expected over the next 18 months.

The price correction may be viewed as a healthy market adjustment as the sharp run-up in home prices over the past 5 years had resulted in home prices reaching unrealistic levels. Lack of affordability and a change in home owners psychology finally surfaced in May. The market is now driven by many motivated home sellers wanting to sell their homes before home prices decline further.

When the selling panic subsides and home prices stabalize, more buyers will return. When homes are purchased based on market fundamentals and affordability, home prices may correct by 30% to 35% before more home buyers return to the market.

We will likely go through a few years of relatively flat and dull housing market.

For a home owner who is buying and selling at the same time, the current market does not matter much. Here are some wise observations by Mr. Dave Watt:

"Most of us sell a home and buy a home within the same market; while we may be selling at a lower price, we're also buying within that lower-priced market.

"Deciding to buy or sell a home should be a milestone moment based on your financial and personal circumstances, and the market conditions within your neighbourhood of choice. For those whose finances allow it, there are excellent opportunities in today's housing market. This is a good market for long-term investors."

"The Real Estate Board of Greater Vancouver has existed for nearly 90 years and witnessed numerous market cycles. Sales increase and decrease. Prices go up and down. Historically, the values at the peak of the next cycle inevitably surpass the ones before."

If you are looking for some great investment opportunities in Richmond or South Vancouver, you are welcome to contact me at 604-721-4817 or email me.

Posted by James Wong Richmond Realtor on 12/05/2008 10:41 PM

Comments (5)

Vancouver Housing Market in the Regional (Localism) Channel

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5 Comments on Making sense of today's housing market

DEC

2008

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.

DEC

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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