A Return To Normality?
Thursday, October 28, 2010
Properties are taking two months or more to sell, but that means the market is returning to normal - and may stay that way through next year.
Forecasting is never easy - particularly when it's about the future. That old saying is particularly true today where investing in real estate is concerned. Real estate by its very nature is local.
Today's markets are not just about the fundamentals. Affordability in Vancouver runs at 68 per cent, the core inflation is at 1.6 per cent - yet prices have soared to a million or more for just an "average" house between Mission and Lion's Bay. That's the average! On the west side that average price is now $1.7 million.
The world's money today is swirling like a drunken sailor. Awash in cash, corporations and individuals are looking for safety first and return second and forget about being logical.
Thus Boardwalk REIT bought some 657 condos in Vancouver, Canadian Apartment Properties REIT spent $37.5 million this spring to buy 1450 West Georgia Street. Five billion dollars was invested by foreigners in Canadian bonds in July alone, Chinese buyers are plunking down suitcase-cash and paying full asking price for downtown real estate and even the much chastened U.S. buyer likes the "Canadian dollar play" when he buys his Vancouver condo.
So, we have to add something else into the mix and that is confidence. How are we as individuals likely to act? Confidence today is also swirling. We were totally euphoric in 2007, became abjectly miserable in 2008, regained our composure in 2009 and now, since March, real estate prices in Vancouver (and the rest of the province) are on a downward turn again.
Different individuals make up the marketplace. The Yuppies (young urban professionals) and the Dinks (dual income no kids) live and play downtown and they have driven the condo market higher - like crazy ($1,000 a square foot in Coal Harbour?). Today, we also call them Mamis (Middle aged Men in Spandex) or Dins (Dual income no sex - all that biking, ahem), but again, they are the with-it crowd. With-it meaning lifestyle above all.
Of course there also the Veeps (the Viagra-enhanced excited people). They are older. but they likely also took the largest losses in the stock market and they are not as keen to buy that secondary home or that resort place.
So, it is not the market, it is collectively the various players in it who will determine the increase or decrease in the different market segments.
Internationally, Canada is now clearly on the map, better fiscally, strong currency, stable commodity-base economy. Large foreign corporations also perceive us as a real estate option and that will continue.
Chinese tourists are now allowed to come to Canada (20,000 in 2010 - 50,000 in 2011) and a percentage will buy real estate. They are flush with cash in their new economy, eager to put it in a safe place. Vancouver already feels like home with a Chinese population of 400,000.
Korean investors are also buying businesses and hotels throughout B.C. (Koreans own 90 per cent of the hotels in Coquitlam). Beneficiaries: Downtown, Richmond, Westwood Plateau, investment properties, apartments blocks, industrial parks, etc.
The Dins, the Dinks and the Mamis will multiply and also buy in Vancouver. Beneficiaries: Burnaby to Richmond, downtown, the North Shore. The Veeps will not buy that recreational home.
Result: The Kootenays, the Okanagan, Vancouver Island, will mainly see an often strong local market and cannot rely on the buyer from Vancouver, Calgary and Edmonton.
Finally, there will be the naysayers. They will talk deflation, depression, crashes, etc. I also believe that short-term we have run out of gas. I think this return of the real estate market to normality (properties 60 days on the market) is, well, normal. It may last six months to 18 months. But you are not buying "the market". You are buying a home for yourself and your family, you are buying an investment. And note: I have in my life often regretted selling a property, but never keeping one.
Inflation will be back, quantitative easing (printing money) will see to that. B.C. leads in inward migration, will have its books in balance by 2013. Hard assets will be higher, but not right away.
In the meantime, we live in paradise. Whether you are a Din, Dink, Yuppie, Veep or Mami, enjoy 2011, it will be as wondrous, as conflicting, as eventful and as exciting as all the previous years. The whole world wants lo live here ... and you do already.
Areas to buy outside Metro Vancouver
EVERYWHERE: Make offers. Some condo prices will come down. People are confused about the vote for the HST and may hold off.
KOOTENAYS: New condo prices in Kimberley down as much as 30 per cent in some buildings.
VANCOUVER ISLAND: Selected markets back to 2008 prices.
SUNSHINE COAST: Still the best-priced waterfront ($700,000 for a sandy beach home) in close proximity to Vancouver.
VANCOUVER FOR LIFESTYLE: Dunbar between Tenth and West 34th, Main and Broadway (Main to Fraser all the way up to 50th and 10 blocks either side). Steveston (Granville Island meets West Van), Newport Village.
RESORTS: Whistler - prices are down substantially in personal use homes (down 25 per cent over 2007) and going back all the way Io 1999 for limited personal-use condos. Time to make offers and get back in.
FOR INVESTING/FLIPPING: Yaletown, West End, downtown, Coal Harbour, Lower Lonsdale (Yaletown North).
FOR CASH FLOW: New Westminster, Maple Ridge Albion, Langley Willowbrook, Abbotsford, Chilliwack
Published in Westcoast Homes and Design, Winter 2010