Originally Posted by jameswift
Vancouver and Real Estate.
We are a city proud of our Real Estate and dare someone say we will see a price drop, there is hell to pay.
There is a good reason for this. Many people are banking on rapidly increasing home prices to sustain increased net worth. Realtors, mortgage brokers, contractors, builders, and the list goes on. There is a lot to gain by too many people to even listen to such words.
After all, real estate only goes up right?
The billion dollar question cannot really be answered since nobody has a crystal ball. Prices may drop, they may stay the same, or they may increase.
All the education in the world cannot predict the future. However, what we can do, is look at the truth of today and try and form an opinion.
Fact #1 - House prices versus incomes are dangerously high.
Average home prices, even for starter homes are far too expensive compared with wages offered in this city. Consider that living in a typical 'average' home to raise a family is going to run $800k in a city such as East Van. Run the number and see how much income is required and how much of a down payment is required.
Fact #2 - Interest rates are at an all time low
While we have seen the overnight rate fall below current levels, as a general rule, most of the population obtains 5 year fixed rate mortgages. This 'leveling' off means that it has been a very long time since mortgage rates have been at their more 'typical' historical rates. Consider that if interest rates did increase a few points, for some, their payments would double. If someone is paying $2000 a month for a mortgage and now has to pay $4000 for renewal, it's going to be difficult. That said, interest rates in places such as Japan have been in very low status for many years however real estate prices typically deflated slowly as time went on.
Fact #3 - Global Market Changes
Lets be honest. Bob Smith is not buying most of the homes. Mr. Lee or Mr. Chan are buying homes. It makes sense. We are Global, and shifts in Asia have pushed the upper middle class into the million dollar club. Vancouver is a city very much designed and accommodating to Asia. This would also support the above comments that local incomes do not support house prices. Money is made elsewhere and is spent in Vancouver.
Fact #4 - Prices and rents tell the story of value
When you buy a stock, you look at the P/E Ratio and if it doesn't look good, you have to be careful how you make the play. Vancouver Real Estate is often much the same. This also tells the story of affordability.
I won't get into the number crunching but from an investing point of view, Vancouver is a poor choice. Buying a condo and renting it out is worse then buying a GIC even with today's current rates if you just look at it from a cashflow point of view.
The reason people are excited about home ownership is because there is the expectation of capital appreciation on the property. Provided prices keep soaring upwards, then the yields can be poor and buyers are still happy.
Lots more to add but who really knows what's going to happen. I personally own a place that I rent out and I rent another place that I live in. The reason is my purchase price of my condo means with renters, I break even after strata, taxes and mortgage.
My rent is a bit more expensive but then I live in a place that's at least twice as nice as my personal home for $300 more a month. To me, it's worth it. The current owner of where I am renting is taking an $900 loss per month.
A friend is renting a $3 million dollar house in Richmond for $3500 a month. The home owner is not too bright.
Prices will likely fall IF overseas money stops or we see increased interest rates. Who knows.
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