Lower Mainland Home Owners Confused About Value of Property

Here is a sample of actual headlines from today’s national press releases:

“Rising Prices, Mortgages Making Real Estate Unaffordable For Many: RBC” – Toronto StarImage

“Vancouver Has Canada’s Most Costly Real Estate Market” – News 1130

Vancouver area home owners are rightfully confused regarding the value of their homes and revenue properties. August statistics published by the Real Estate Board of Greater Vancouver show price increases for single detached houses in Greater Vancouver of over 19% over the past five years. In the entire Lower Mainland, the same stats show an increase of over 14%. So why haven’t the majority of real estate owners seen this increase in value?

First off, the stats discussed above are for single detached houses, which are the stats most quoted by mainstream media. These prices are greatly affected by the influence of offshore buyers. These buyers are often purchasing properties at the higher end of the market and are not subject to tightening mortgage approval conditions or the prevalent economic conditions of the area. Also, the prices in this market are often high enough to affect the average price of the city based on a smaller percentage of total sales.

When you look at the stats for townhouses and apartments, you’ll find a much different story. Townhouses throughout the Lower Mainland have increased in price only .1% in the last 5 years, and apartments have actually decreased in price over the same period by 1.1%. Basically, the market has been completely flat in regards to price since the global financial crisis of 2008/2009.

The reasons are many, including the tightening of mortgage approval conditions by the Federal Government, the uncertainty of the financial recovery as well as the threat of increased interest rates. All of which affect, for lack of better terminology, the average  working Canadian home buyer.

History, in general, repeats itself. This is where the upside of Vancouver real estate pricing has come through for home owners over the past century. It is also why, for the most part, townhouse and apartment prices should begin to rise again over the next 5 years. Since the Real Estate Board of Greater Vancouver has been reporting on home prices in the early 1900s, there has never been a ten-year period that has shown a decline in overall home prices.

Now, that’s not to say in can’t happen, but we can explain why it most likely wont:

1.  According to BC Provincial Government projections, the population of the Lower Mainland will increase by at least 30,000 people per year, for the next 20 years!

2.  Vancouver, due to its geological layout, has a land shortage, and always will. The ocean to the west, the mountains to the north and the US border to the south limit the amount of land available for residential development. Land will always be at a premium in Vancouver as the area continues to expand over the foreseeable future.

3.  A rise in interest rates may very will lead to an increase in price.

This is the area where our street level, gut feeling comes in. As we see it, there is a pent-up demand to own real estate for the majority of Canadians. We see it as a way to both control our future as well as plan for our retirements. Even if prices stay flat over our lifetimes, we will still pay off the mortgage and have savings in the floor boards of our houses.

With interest rates at the lowest levels in recorded history, when they start to rise, many Canadians will look at these increases as the last chance in a lifetime to buy in to the market. Or, move up to a larger home and consequently a larger mortgage. A trend towards higher rates may very well trigger the market back to more normal levels for Vancouver. Traditionally, Lower Mainland home owners have been able to count on price increases in the 5% range on an annual basis.

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