August 18, 2011

The Home is Still Our Best Investment

The second quarter of the year has seen a dramatic 85-per-cent jump in multi-family residential home sales in the Lower Mainland over the same period a year ago.


Home prices have been a hot topic in the Lower Mainland as long as most of us can remember and as the years have passed, the news has almost always been good for homeowners – and perhaps a little daunting for buyers.

According to the quarterly MarketShare report published by Colliers International Residential Marketing, 2011 has been something of a banner year for home sales in the Vancouver Lower Mainland area. During the first quarter, multi-family residential real estate sales were up 35 per cent over 2010, but Colliers’ second-quarter figures reveal a dramatic 85 per cent gain over the same period last year.

Said Colliers International residential marketing president and managing partner Greg Ashley: “From an overall perspective, the Lower Mainland market continues to impress,” adding that the pace of sales in the second quarter was “simply astounding.”

This pace has been set by several high-profile projects going on sale in the region early in the year. Immigrants from Asia were a strong force in this market, as they have been for many years. The concerns some observers have with “offshore buyers” seem to be unwarranted as only a tiny percentage of home buyers live in another country – the vast majority come to Canada to live and work.

Scott Brown, senior VP for Colliers in western Canada, said that immigration from Asia would continue to influence the market. “Immigration from China to Canada and the related purchase of property is a long-term trend. Offshore investing is expected to grow even if there is a short term correction in our market.” He added that furthermore he didn’t see any erosion of buyer confidence if the HST remains in place.

Referring to possible interest rate hikes, Brown pointed out that rate hikes would have to be quite substantial to deter buyers. “Every increase does make it harder for first-time buyers and re-start buyers,” he said. “ If a substantial increase does occur, the industry will need to provide innovative purchaser financing structures such as down payment assistance.”

Worries buyers may have about the possibility of rising interest rates will likely be calmed by the recent U.S. Federal Reserve announcement that it will all but freeze interest rates there for at least a couple of years. U.S. Fed decisions invariably have an impact on Canadian money markets.

Michael Ferreira, of the real estate and urban planning firm Urban Analytics Inc., said that it was certain key locales that had gained strength due to immigrants from Asia. He noted that key sub-markets included West Side Vancouver, Richmond, West Vancouver, Burnaby (Metrotown) and South Surrey for detached homes and townhomes.

“There’s no reason to believe that the Mainland Chinese buyer won’t continue to influence these areas for the foreseeable future, unless some government policy is introduced that discourages them from immigrating or investing here.” he said. He added the HST had created “an uneven playing field” between the new and resale home markets and that there should be some effort to “level the field.” He pointed out that anything that increases carrying costs would deter some buyers, particularly with the region’s high prices. “Any market where the immigrant buyer is not active is particularly sensitive to price and/or carrying cost increases,” he concluded.

A recent Royal Bank of Canada (RBC) report includes some bright spots with regard to the B.C. market. What the report describes as “puzzlingly strong gains” in the Vancouver market have been significant enough to exaggerate the Canadian national average. And Canadian Real Estate Association figures show an 18 per cent surge in average resale home prices in Vancouver during the first six months of this year, compared to the same period a year ago.

Worries buyers may have about the possibility of rising interest rates will likely be calmed by the recent U.S. Federal Reserve announcement that it will all but freeze interest rates there for at least a couple of years.

Notes the RBC report: “A rebound of activity in the second half of 2010 set the B.C. market up for a good start in 2011 in terms of resales.” Affordability is a problem, though, and there has been some moderate levelling off recently. Overall, RBC believes that strong early momentum will translate into “vigorous price advances” of 5.7 per cent in the province for the year as a whole.

Historically, property has been a solid investment in the Lower Mainland for decades and it seems unlikely that there will be any lasting price dip – especially in the “hot” areas outlined. There are still substantial numbers of people who’d like to live in B.C. – both from overseas and in other provinces – and until that situation changes, a home is probably still the best investment anyone can make. It’s just that right now, equity gains are more likely to be longer-term than short.

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