Reason Behind The Increasing Market Price

Reason Behind The Increasing Market Price

As most of you are aware, the real estate market is getting active.  More buyers are coming into the market every month attempt to buy a new home at a low price.  For those whom have been a part of this competition, you may already realize that the price for real estate has started to go up during the last 3 months.  The question a lot of us asked is: "How could the price be going up when the economy is doing bad?"

To answer this question let us refer to a simple economy concept called equilibrium.  At the equilibrium point, the amount of supply meets the demand.  Thus, we have a stable price level. 

However, in any market, not just real estate, supply and demand are easily influenced by any outside factors such as government policies, average wealth etc... If these influences happened to increase demand more than supply than our price level will be adjusted upward.  (increase on price level)

For the real estate market in Greater Vancouver, we are now facing the following factors that alter our supply and demand:

1.Population Growth

B.C.'s population grows by more than 70,000 per year.  This means that we need to provide 1500 new homes every week in Greater Vancouver to fill this demand. 

2.Mortgage Rate:

The newest mortgage rate for a five years fixed is now 3.99%.  Compared with two, three years ago where it is at 5.14%(this is what my parents have) for the same terms, this rate has induced more buying power for our homebuyers. 

Here is a simple math analysis to show how much you can save comparing the two rates that we have:
For a $500,000 mortgage, a 3.99% semi-annual interest rate would give you a monthly payment of: $2627.39

Whereas a 5.14% semi-annual interest rate would be: $2948.00
You are now saving $320.61 per month.  Over 25 years (300 monthly payment), you would save $96,183.00

No doubt that this extra saving would attract more buyers.

2.Less Sellers

During this economy downtime, thousands of housing units have been held back from the market by nervous developers.  Not only the developers are holding back, a lot of sellers just monitoring the market since it hits the low points at Nov. last year and March of this year.   

From the newest statistic reports from Greater Vancouver of Real Estate Board, the new listings for May 2009 has decreased by 36% (4733) compared with May 2008.  The number of new listings on Multiple Listing Services has decreased by 4.7% compared with last month.

Based on these information, we can conclude that to keep our price constant, we need to have more listings every year.  However, our current market shows that less properties have entered the market this year compare with last year.  We have high demand of housing in Burnaby (increased of sales by 48.9%), North Vancouver (increased of sales by 31.4%), and Vancouver West (increased of sales by 63.4%).  This sudden increase of buyer has push the demand so high up that price started to increase as well.  The chart below shows the overall House Price Index which is a number that is used to estimate property price.

From the chart, it shows that the price level for Greater Vancouver has been increasing since March of this year.  Experts in Vancouver real estate predict that this trend will continue throughout the next couple months.  They also added that it would be unlikely for the price level to be back at the peak point as 2008.

Hopefully this new movement in real estate market would bring confident back to our sellers and establish a new steady point in the market.

If you have any question regarding to buy/sell real estate, please click here to e-mail me.  You can also call me at 604.782.1964.

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