Condo construction | BCBusiness
Higher-than-normal levels of new home and condo construction are impacting sales in the Greater Vancouver real estate market.
Skyrocketing real estate prices have reached their inevitable conclusion, apparently stopping the real estate frenzy of recent years. This year so far, house prices have fallen by some 20 per cent in the Vancouver region. It's about time.
All those taking part in Vancouver’s favourite investing game – real estate – may want to consider another pursuit. Meanwhile, those who were shut out of the market because of absurd prices may be getting some relief, albeit still minor.
It seems the local real estate market is on the skids – not exactly crashing, but certainly slowing from its torrid pace of the last few years. The air is coming out of the "bubble," which it really wasn't, although it looked enough like one to have most people thinking it was.
According to an analysis by BMO’s senior economist Sal Guatieri, April resales were down 13.2 per cent year to year from last year, and 20 per cent in the first four months of 2012. This resale drift was led by detached properties (usually running at $1 million), especially on the west side, where houses were routinely going for $2 million and up.
Guatieri credited the downward drift to the marvellous term “rich valuations” (no kidding!) and tighter lending standards. But, he added, investors may be moving to less expensive cities – like Toronto. He also credited some of the rise to higher-than-normal levels of new home construction, three-quarters of which is condos.
No surprise there, since housing has become so unaffordable in the region (prices increased 163 per cent in the past decade, and are now nine times a typical median family income) that “normal” buyers can’t afford them and are forced into lower-priced condos. Heck, even investors can't afford them any more.
This median-income household, if buying a typical house with a 10 per cent down payment, will spend an estimated 54 per cent of before-tax income on mortgage payments, never mind insurance and property taxes. After tax, the mortgages sucks up 75 to 80 per cent of the family’s income.
Investors might be a bit better off, but it's still difficult to quickly put together a million or two for an investment that's declining and may take some time to begin rising again.
Guatieri is merely saying in econo-speak what most of us have suspected would happen some day: the city would simply run out of buyers for its absurdly high real estate because high housing costs would become a barrier to continued in-migration and investment. Essentially, the market is just plain exhausted.
It’s also played hell with the city’s housing stock in general, and cries are rapidly building for authorities to create some kind of more affordable housing. So far, they’ve barely been heard, but they’ll continue to mount until the situation becomes downright ugly.
I guess being pretty isn’t enough anymore for a great investment. You actually have to have some value to go along with your good looks.