January 31, 2015
Current cheap mortgages and basic principles of supply and demand will keep Vancouver market propped up indefinitely
We all see the headlines throughout our daily lives: "Real Estate Bubble About to Burst" or "Vancouver Second-Most Unaffordable City In The World" and so on. Many people in the city let these headlines affect their thinking and avoid property ownership. Well, I'm here to tell you that now is one of the most opportune times to get into the Vancouver real estate market.
Yes, I'm a Realtor, so what else am I going to say, right? While my profession could very well have an impact on my thinking, the stats I'm about to highlight don't lie.
The first factor is the historic low levels of interest available to mortgage consumers. With rates hovering around the 2.84 per cent level on five-year fixed terms, (when you use a Dominion Lending mortgage broker) the market hasn't seen this level of interest since after the Second World War. But can the low rates stay here forever? Not necessarily at these historic lows, but they will remain relatively low, for a few different reasons.
Western banks are faced with an aging population that is retiring, and therefore saving in large amounts. This is reducing their appetite for high interest rates, because they would have to pay out on these large amounts. Combine this with a government in need of stimulating its economy, especially with low oil prices, and rates could very well stay low or set new records for historic lows over the coming years.
However, I do always advise my clients to err on the side of caution. Paying off your mortgage with large one-off payments or a shorter amortization is highly advisable at this time. Also resist the temptation to buy a home that is at the max of your approval limit. Calculate how much your payments would be if the rates were at 6 per cent when you renew in five years. Are you comfortable with this payment? If so, then start shopping in that price range.
The second factor that is often cited is that Vancouver is overpriced and therefore the prices are unsustainable. While the merits of interest rates can be debated, in my opinion this argument is extremely flawed. Yes, the price of land in Vancouver is very costly – there is no escaping that. And yes, the cost of buying a home on freehold land is out of the realm of possibility for most average people. But does that mean the entire market is unaffordable? Not necessarily.
Really this comes down to the economic theory of supply and demand. There is a super-high demand for land in the Lower Mainland, and Vancouver is a relatively small city in size so there is a super small supply of land to develop properties on. So while buying a single-family detached home is very difficult unless you have a high income, ownership within a strata is much more affordable and is a very conservative approach to personal financial planning. Shared ownership is much more preferable to throwing your money away on rent.
So the next time you see a headline that says “Vancouver is the second most expensive real estate market in the world”, hold your head up high. Most of you have the opportunity to own real estate in one of the safest, sought-after real estate markets on the planet earth. New York, Hong Kong, London and Vancouver are all extremely safe markets to investment in.
Outside of global economic collapse and a rapid rate of inflation that leads to a sharp increase in interest rates, there is little that can affect the Vancouver real estate market. And even if that were to happen, rest in the knowledge you’d still own in one of the top five real estate markets in the world. There would be no shortage of people lining up to buy your home if you chose to sell.
- See more at: http://www.rew.ca/news/opinion-now-is-the-time-to-get-into-vancouver-real-estate-1.1748137#sthash.4OQVGmE9.dpuf