Want a conversation stopper at your next party? Just bring up the impending real estate meltdown in Vancouver –the one where house prices implode.
You’ll be mocked and told how interest rates are at historically low levels and you’ll hear all about those swarms of filthy rich Chinese flooding our borders. Then, they’ll tell you that thanks to the feds and the CMHC, pretty much anyone can over-extend themselves with 5% down and 35 years to pay it back.
I went onto ClickRealty’s website and searched for single family homes in Vancouver between $1.5 and $2 million. Can’t do it—there are too many. So, instead I just clicked on houses at random.
In the example here of the $1.78 million house on West 12th, say you have a 20% down payment of $357,600, an interest rate of 5% and a 25 year amortization and you lock all that in for the next five years; your monthly mortgage payment is $8,319.28. That’s $99,831.36 a year not including taxes, lawyer’s fees, and renovation costs.
Now take another look at the house in this picture.
Interest rates have hovered below 5% for the past seven years, but historical averages are more like 10%. Let’s say when you come to remortgage in 2017, rates have jumped to a modest 7%. Your new monthly payments are $10,018.75 a month—an increase of $20,393.64 a year and your mortgage will now cost $120,225 a year.
I probably don’t need to point out that the median wage in BC is $66,700.
In a report released last June, Sal Guatieri, senior economist, Bank of Montreal, conservatively notes that Vancouver houses cost 11.2 times median family incomes. “Riding a wave of wealthy immigrants, Vancouver’s house prices have nearly tripled in the past decade,” he says. “After running only modestly above Toronto’s prices in the early 2000s, Vancouver is now 71 per cent higher.”
Last November, the audience at a Vancouver Board of Trade discussion on housing were told that high immigration to Metro Vancouver and continued low interest rates will keep the regional housing market strong into 2012. The panel included the president of the Real Estate Board of Greater Vancouver, CEO of Ledingham McAllister Properties and moderator David Podmore, CEO of Concert Properties—not exactly an unbiased lot.
While things may stay peachy for 2012, Richard Wozny of Site Economics, a research and consulting firm, warned that Asian buyers may not continue as a market force. “China is
seeing a property bubble,” he said. “Sixty million homes remain vacant in China and hundreds of millions of square feet of office and industrial are vacant, all just speculative.”
Still think your house is safe? Let’s go back 100 years.
I took these nuggets of information away from a Vancouver Museum exhibit a few years back:
Real estate purchases exceed all the heady expectations of eager investors in the boom years between 1908 and 1912. It all collapses in 1913 and the price of land does not recover to its pre-bust levels until the mid 1950s.
That’s over 40 years!
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