When looking at Greater Vancouver real estate prices there is no denying the recent tremendous drop in sales volume, 43% below the ten year average, and typically within 3 to 6 months of sales volume dropping off prices do follow. My own crystal ball suggests that it will not be a very deep reduction in prices, perhaps 5% – 10% on average over the next 4 to 6 months, and much like a yo-yo on an escalator it will simply be a break before another rise.
Keep in mind that seasonally we are also heading into what is typically a soft market.
I believe a keyword people should have in mind today is ‘Stability’.
There are several indicators that this word applies to current interest rates, the Canadian economy as a whole, and most likely our own personal incomes.
As a real estate investor, and somebody who works with several other real estate investors, I see stability for many landlords.
The recent mortgage changes, which have undeniably slowed the market for purchase transactions, simply serve to increase the demand for rental property in a growing city with a reasonably healthy economy. Increased demand typically results in rising rents.
As property valuations decline, while potential rents rise, investors will step back into the market and provide support at a certain price point for a certain portion of the real estate stock.
Setting aside potential increased demand, it simply stable rental market will ensure that the majority of landlords are not put in a position where they must sell a property in a declining market, which would only serve to fuel the downward trend.
If homeowners remain gainfully employed and are not put in a position where they must sell their property, and if landlords (most of which have taken advantage of record low interest rates) are able to retain tenants and thus are not put in the position where they must sell their property, then it follows that the overall price decline is likely to be relatively painless for the majority.
Another key point to keep in mind is that historically every contraction in the real estate market is typically followed by a surge in demand and prices move onward to new highs.
One of the primary drivers of these continued new highs is inflation. Just as an ice cream cone will never cost a nickel again and minimum wage will never drop back to $3.85 per hour; so go real estate values. A detached home in Vancouver will not be dropping back down to $13,000 circa 1968, let alone $338,000 circa 1999.
Yes even if we have a price dip, it will only be temporary in the grand scheme of things. With the amount of currency that has been printed in recent years it would seem that inflation of hard assets, in particular Real Estate, is inevitable.
As one of the first paintings I see every morning says ‘keep calm and carry on’.