Todays Vancouver Sun leads with the cheerful headline House millionaires double in the province. Are these people that own or owe a million dollars?
Most new paper millionaires own single-family houses. There are 38,027 such homes worth more than $1 million according to 2007 property assessments — 18,459 more than a year ago.
And the number of condominiums assessed at more than $1 million increased by almost three quarters to 3,260 properties.
As BC real estate association chief economist Cameron Muir (nÃ©e CMHC) points out this is based on the july 05- july 06 assessments which saw some of the biggest price increases. Prices for the last six months are doing something strange – they’ve actually been dropping in many categories since a price peak in september 2006.
Muir added that assessment increases are only “paper profits.”
“It’s the equity in your home. Today it may be high, [but] the market may change and it may not be so high in a few years,” he said.
Is that the most pessimistic Muir quote yet?
Property assessments are out now and we’ve seen an astonishing 25% increase in prices from july to july. If we extrapolate those gains into the future we’ll see an average home price that is 8,000 times the average Vancouver income before too long!
On the other hand those assessments are six months old and if we were to extrapolate the price change month over month based on the last months price reductions we’d see the average house sell for twelve dollars in just a few years.
Extrapolating is tricky business!
The Province has published a list of top tips from financial professionals, most of these are the handy standards like diversify, keep an eye on interest rates, etc. There is one stand-out hot real estate tip from Carey Ellingson, a Scotiabank branch manager in Sherwood Park, Alta.: BUY NOW!
Ellingson says the new mortgage options of zero down payment and amortization periods up to 35 years can help first-timers to buy a home before prices rise out of reach. He expects real-estate prices in some provinces to rise further. If you are a borderline buyer today, “the longer you wait, the less opportunity you will have,” Ellingson says. “Take the leap of faith” and buy while you can.
In some provinces price may rise further! You can take that to the bank, so buy now before you and everyone else is priced out forever. Certainly don’t waste your time trying to save up a down payment!
I’m guessing once we reach the ‘price out’ stage all home owners will be billionaires and there will be no more buying and selling of houses? First we sell to locals, then maybe Americans (as long as their economy doesn’t take a nose-dive) and then to countries further afield, perhaps even buyers from other planets! The Japanese might have an advantage here with bold 60 year mortgage terms.
Now some of you ‘sceptics’ will think that a bank representative would encourage ‘zero down & 35 year terms’ simply because it means several hundred thousand dollars more in profit from each customer. This is simply not true!
A long amortization period can enable low monthly payments initially. But as your income rises, Ellingson advises you to “pay it off early” and save interest costs.
His tip doesn’t advise on what to do if your income drops or sees an interruption in the next 35 years, but if you’re bold and brave enough to buy in Vancouver right now I’m sure you will be able to see your way through any adversity.
Myraa Posted this link to the BC assessment website which is open to the public and free to use until March 15th. This is a treasure trove of information if you are curious about assessed values on property in Vancouver, and includes info on sales that took place last year. You can search by address to check a block of homes at a glance.
From the BC assesment site:
Assessments and Sales by Address is a free, online service that enables BC property owners to audit our assessments by comparing the value of their property to others in their neighbourhood. It is available during the property assessment appeal period from January 2 to March 15, 2007.
They will also email you detailed property reports through their sales select system.
I’ve seen it argued that while it may be a poor time to buy investment property in Vancouver, it’s never a bad time to buy a home you live in because ‘your primary residence is not an investment‘. While its true that your home will never be as liquid as stocks or a high interest savings account, it seems disingenuous to claim that your primary home is not an investment, particularly when the next reason to buy now is often that ‘prices always go up in the long run‘.
If the hope for future price increases isn’t an investment than what is it?
According to this article the average house price in Vancouver for November was $519,294, down about $29,000 from the previous month. Now I don’t know about you, but anything I buy for more than a half million dollars is going to be a fairly major purchase in the grand scheme of things, and $29,000 represents some nice renovations, a chance to buy more space or a few really nice vacations.
Maybe I should be unconcerned about the historical ups and downs of the real estate market since my home is not an investment, but if its not an investment then why is it so much more expensive to buy then it is to rent the same property?