Top Down MarketsPosted: November 15, 2011
As we approach the end of 2011 real estate prices in most urban areas of British Columbia continue to rise. The Real Estate Board of
Greater Vancouver is showing gains in average price of over 10% from 2010. Yet many home owners, especially those in the under $500,000 price point in Greater Vancouver, are wondering why their properties are not reflecting this increase.
Vancouver is still in a recovery phase from the drop in price in the lower end of the market which occurred during the financial crisis
of 2008. The increase in price seen “on average price” is greatly affected by the higher end of the market, which has seen significant gains over
the past year. These gains are reflected in the increase of purchasers from
Asia, particularly China.
This influx of buyers, not seen on this scale since the
1990s, has created a market which is a “top down” market. Most real estate
markets are supported by the bottom of the market. This means the first time
buyers buy an apartment from someone who is moving up to a townhouse who is
buying from someone moving from the townhouse to a house.
In a top down market, offshore buyers purchase more expensive homes from
existing owners who may be downsizing or making a sideways move. When prices
hit a certain point, these offshore buyers have to look at smaller houses as
they can no longer afford what they may have purchased a year ago. Thus the
market is now supported from the top down.
With net-inmigration still over 50,000 per year, Vancouver should do very well
over the next 5 years. The lower end of the market is just starting to react to
these top down conditions. Especially as turbulent stock markets push investors
back to brick and mortar investments such as real estate and precious metals.
On a mortgage related note, the Financial Post recently ran an article on the
benefits of reviewing your current mortgage to take advantage of extremely low
mortgage rates available in today’s market.