Recently a lot of attention in the news has been focused on the topic of whether Canada and in particular cities such as Toronto and Vancouver are going to experience a real estate bubble. From the articles that I have read and the research that I have reviewed, there are folks who promote and predict a bubble burst and price corrections of as high as 45%. While I am not of this opinion, nor has anyone been able to provide me with any new information that gives substance to such an event happening, there is certainly a group of believers out there. To be clear, the below is simply my opinion based on what I’ve discovered and determined in the last couple years immersed in the Vancouver Markets. Everyone has an opinion, but I wanted to share mine with you.
Argument: It is expensive to live in and buy a home in Vancouver, and the market is drastically over-priced. Those who promote a looming price correction in Vancouver strongly maintain that the market is currently overpriced. They argue that the housing market has grown exponentially over the past 10 to 15 years, and has been driven mainly by investors who will sell if the markets begin to change. If this were true, there would be no other option for prices than to dramatically correct themselves – its simple supply and demand.
A few reasons why I politely disagree:
VALUE: Prices of similar products vary dramatically for various reasons in every industry and country. The average BMW will cost more than the average Ford. This in itself does not mean that the BMW is overpriced, rather than for a number of factors (real or perceived), there is a higher value being placed on the BMW by the marketplace. As long as the customers who value the features, brand, styling, and handling of a BMW continue to place a higher value on it, the price differential will remain. Bringing it back to Real Estate, a similar apartment in Vancouver costs more than the apartment in Winnipeg for a number of different reasons. As long market participants continue to place a higher value on the Vancouver apartment the price disparity will remain. Regardless of how much market prices have increased in either city, it does not necessarily mean a correction is in order. The correction will be determined by what the market can bear.
LIFE CYCLE: Over the past 10-15 years, Vancouver went through a dramatic growth cycle that was accompanied with price increases. 10 years ago, there was a severe shortage of apartments for the growing city which induced extensive construction and we can now see that we are in a mature market place. Vancouver has smoothly transitioned from growth to maturity and is now relatively balanced. Without dramatic changes in migration, birth rates, interest rates, or jobs I see us riding out a side-ways market for the next couple years with price fluctuations of about +3 % to -8%. I believe that 2013 will have modest growth across the board, however the detached home market continues to show more demand from buyers than good product available. This sector will thereby produce more growth than apartments and condos, which are staying balanced.
MIGRATION: I believe the statistic is that 35,000 new people move to Greater Vancouver each year. Many of these new emigrants to Canada are in a position to purchase property right away which is faster than previous immigrant groups from Europe that came to Vancouver. There are on average about 35,000 sales that take place in the Greater Vancouver Area on any given year (plus or minus a few thousand)... Between local demand, some investment and continued immigration, I do not see a significant change in the number of buyers available for the average number of annual sales.
INTEREST RATES: Yes rates are low right now, and they will certainly be higher in 5 – 10 years. I don’t see a spike in rates that will induce default or forced sales of volumes that cause a dramatic fall in market value. I see a gradual increase over the next years that will allow families and homeowners to make the necessary adjustments to their payments.
LOCATION: Canada is a phenomenal country, BC is amazing province and Vancouver is where I want to live. There are many other places that I could live and potentially have more disposable income, but I love Vancouver and have chosen it to be my home. Vancouver is currently a top 10 city in the world. I believe it will always be a top 20 city in the world. Unless we build a nuclear power plant in False Creek or build an iron smelter on Spanish banks...my attraction to Vancouver and willingness to pay the price will continue.
JOBS: While Vancouver has no singular industry that employs the majority of people, we have numerous sectors that grow, change periodically and support our economy. We have no steel mill, no paper plant, no oil rig and no subordinate employer that would induce people to leave if markets changed. People’s earning power compared to living costs may be slightly disproportionate in Vancouver, but their lifestyle might weigh out the negatives.
PEOPLE NEED HOMES: In the past two years I have helped more than 50 people buy homes in Vancouver. Three have been investors, who have no interest in selling their property despite what the market might do – they are looking for a safe, long term investment. Additionally, for them the rental market is solid. Of the 50 buyers I have helped, less than 10 were people downsizing from larger homes (there was no shortage of buyers for the detached homes). All of these clients are looking to live in their homes for many years. The majority of my buyers were first time buyers, looking for their first Vancouver property because they are tired of renting and paying someone else’s mortgage. These buyers have been planning for an average of three years and saved an average 12% down payment. What does this mean? Of the buyers that I have helped in the past two years, price fluctuations of less than 10% will not induce any of them to sell as it’s not a viable option, while buyers who bought before them have built in equity in their homes in addition to their down payment. Personally, I don’t see the compounding of factors culminating to create a downward spiral and price corrections of 25% to 45%. That is not to say that there couldn’t be small corrections along the way, but overall I’ve noted that there is a consistent number of people that want to continue to call Vancouver home and place its value high enough to support the higher prices.
Thank you.
Roland Kym
Medallion Club Member ~ Re/max Executive Club & 100% Club Member
Remax Select Properties
Cell : 604 970-0393
No comments:
Post a Comment