DAVID HUTCHINSON 778-839-5442 DAVID.HUTCHINSON@CENTURY21.CA
Opinion: Builder incentives and low mortgage rates make homes as well-priced as at any time in the past 10 years
market is as popular a conversation topic as the Canucks. While the Canucks’ talk centres around which goaltender should be traded, discussions about the housing market range from the validity of a listing price of a neighbour’s home to market bears who insist from thousands of miles away that a meltdown is inevitable.
I thought it might be helpful to offer some perspective based on our observations of the Metro Vancouver housing market. But just who am I, and what qualifies me to offer this perspective? Briefly, I have been a part of Metro Vancouver’s new home market for over 20 years — much of that as a principal of Urban Analytics Inc., an independently owned firm that has been providing research and advisory services to developers, lenders and other industry stakeholders for the past 15 years. Our firm offers impartial analysis of the market, and we’ll share that information with Vancouver Sun readers.
Now let’s talk a little about affordability. Is Metro Vancouver housing affordable? The knee-jerk response is ‘No!’ As the Urban Analytics powered UDI/FortisBC New Home Affordability Index introduced in today’s Vancouver Sun illustrates, new homes are not affordable for many households in some parts of Metro Vancouver, which is not a good thing. But the index also suggests new homes are affordable for the majority of households in other parts of the region, which is a good thing. Unlike other affordability indexes that suggest we shouldn’t even have an active residential real-estate market here considering households would require upwards of 70 per cent of their income to service a typical mortgage, the UDI/FortisBC index considers the home price variances in different parts of the region to illustrate where housing is more affordable for more households.
It has been frequently suggested (mostly by economists and analysts who typically consider only macro-economic house price data such as average sale prices for an entire region, which may be skewed by data from a small area, such as the west side of Vancouver that Metro Vancouver’s home prices remain in bubble territory. Our research suggests this is not the case in the new home sector throughout much of Metro Vancouver. Let’s look at an example of what it would cost to service a mortgage for a new townhome in the Fraser Valley today versus 2007.
As the following highlighted area illustrates, today’s lower interest rates have made it more affordable to service a mortgage on a new home today than at the previous peak of the market in 2007.
Typical two-bedroom, two-bathroom townhome in Surrey’s Clayton neighbourhood:
Size (sqft) Price Dwnpmt (10%) Mtg. Rate (5-yr. posted) Amort Period Monthly Mtg. Pmt
2007: 1138, $277,900, $27,790, 6.45%, 25 years, $1,701
2013: 1155, $269,900, $26,990, 5.24%, 25 years, $1,475
But lower borrowing costs aren’t the only contributor to cheaper servicing costs; lower home prices in some sub-markets of Metro Vancouver have also contributed to the increased affordability. We could make this same comparison for new condominium or townhome product in a number of different areas including North Vancouver, the Tri-Cities, Langley and South Surrey, and the results would be similar.
Speaking of lower home prices, while new home price indexes and MLS Benchmark Prices continue to indicate home prices in our region have dropped only marginally over the past year, our research indicates that when current incentives offered at many new home projects in the region are considered along with the current record low borrowing costs, new home ownership is arguably more affordable today than it has been for much of the past 10 years.
The laws of supply and demand are hard at work in Metro Vancouver’s new home market.
Buyers shopping for a new apartment or townhome in an area with abundant unsold inventory will find they are in the driver’s seat, and that for the first time in recent memory, developers are offering significant price-reducing incentives and in some cases willing to negotiate sale prices.
The bottom line is, for those waiting for ‘The Big Crash of 2013’ as a national magazine’s front cover wrote recently, you’ll be waiting for a long time. But if you’re OK taking advantage of more of a fender bender in the market, now is as good a time as any to jump in. And as we know, it takes a lot less time to clear a fender bender than a serious crash.
Michael Ferreira is a Principal of Urban Analytics Inc., Metro Vancouver’s leading new home research and advisory firm, and the publisher of The New Home Source, a quarterly publication that provides detail and analysis on all active and planned new multi-family projects throughout Metro Vancouver.