First-time homebuyers looking to avoid higher interest rates down the road are helping drive up the real-estate market in a number of Canadian regions, especially in Metro Vancouver, says a report issued Tuesday.
The First Time Buyers Report 2011 by real estate services firm Re/Max also suggested that Metro Vancouver prices in the first two months rose an "unprecedented" 20 per cent in January and February compared to the first two months of 2010 -with Hamilton-Burlington, Ont. the runner-up with eight-per-cent price gains -although prices were skewed by sales of higher-end product, mainly in Richmond and the west side of Vancouver.
"Twenty per cent is a staggering number, but it really tells us that Vancouver West and Richmond, and maybe to some degree East Vancouver, have a particular strength in sales, price increases on single family [homes], or large lots with older homes bought up with the idea of redevelopment," Re/Max Westcoast spokesman Richard Laurendeau said in an interview.
"By no means should [people] believe that a typical home has gone up 20 per cent."
According to the report, strong demand for residential real estate in Greater Vancouver in 2011 has pushed housing sales and values well ahead of 2010 levels. "Both first-time and move-up buyers are leading the charge, especially in areas like Richmond and Vancouver Westside, where sales have been particularly brisk," the report said.
Re/Max said the prospect of higher mortgage rates has prompted many of those determined to get into the market to act in the early part of this year.
It also noted the federal government's newly implemented conditions for mortgages that reduced the maximum amortization period for governmentinsured mortgages to 30 from 35 years, and limited the amount people can borrow when refinancing their mortgages to 85 from 90 per cent of the value of their homes.
Led by the Bank of Canada's relatively low benchmark rate of one per cent, homebuyers continue to enjoy mortgage rates that are low by historical standards. However, it's not expected to last.
Just this week, most of Canada's major banks hiked their mortgage rates, with standard five-year, fixed rates moving up 35 basis points to 5.69 per cent a year.
Re/Max said home sales are up from where they were at the same time in 2010 in about 30 per cent of Canada's main markets, with prices rising in 70 per cent of markets.
But the report said the Vancouver region is particularly strong, with sales up about 12 per cent and prices rising 20 per cent.
"Close to 5,000 homes have changed hands to date, up approximately 12 per cent over the same period one year ago," the report said.
"Average price now hovers at a record $780,000. Erosion in affordability levels has been significant in recent years, yet first-time buyers continue to enter the market, explaining the 44 per cent of freehold and condominium properties selling under the $500,000 threshold so far this year."
The report noted that many entry-level purchasers are scaling back on expectations, sacrificing quality or size to realize home ownership.
As well, it said, "some are moving further east or south of the city to communities that stretch the dollar a little further."
It said momentum is expected to build in Greater Vancouver heading into the traditionally busy spring market, with improved economic performance, greater job security and increased consumer confidence levels.
Meanwhile, Laurendeau said there has been "phenomenal" growth in the high-end sector, adding that many lots in Richmond that sold for $800,000 to $900,000 in December would fetch between $1.2 million and $1.4 million today. "And we're starting to see it move out into other areas."
Cameron Muir, chief economist for the Real Estate Board of Greater Vancouver, said a more accurate estimate of the price increases is the board's benchmark price, which reflects the cost of a typical home.
"The 20-per-cent [number] is erroneous because it's an average. The average price was up in February 2011 compared to February 2010 by 19 per cent. The benchmark price was up four per cent. So, we're seeing a real divergence between the average and benchmark prices."
Despite that, he added, Vancouver is a sellers' market with a significant number of sales last month, so there's upward pressure on prices. "There may be some momentum for a month or two and then a moderation in sales [with less demand and higher interest rates] off these lofty heights.
Muir noted that the average price for March for all residential properties was $792,094.
Tsur Somerville, director of the centre for urban economics and real estate at Sauder School of Business at the University of B.C., said in an interview that he believes there are other big factors besides first-time buyers driving the market, including investors.
"What they're reporting is not the only conclusion we can draw from the data."
The report also noted that in Victoria, "prices should edge up slightly." In Kelowna: "Housing values have been relatively flat over the past six months, but the gap is now closing and prices are expected to resume a modest upward trajectory heading into the spring market."
By Brian Morton, Vancouver Sun