With monthly home sales in Greater Victoria reaching 15 per cent of total inventory, our local real estate market has clearly moved from its previous Buyers’ market to a Balanced one. Despite record numbers of property sales however, prices remain fairly static — up only about one per cent in the past year.
A balanced market is the healthiest state for a real estate market. Neither buyer nor seller has the upper hand. Buyers have ample inventory from which to choose, and with prices holding steady, they need neither rush their purchase decision, nor have much fear of encountering multiple bids when making an offer.
Sellers, on the other hand, are encouraged by a good level of sales activity in the market place. They know that if their home presents well and is priced competitively, it has a good chance of selling reasonably quickly and fairly close to their asking price.
The real estate community is happy in a balanced market. The number of homes selling is steady, at a good pace, with both buyers and sellers relatively relaxed. Qualified buyers find it easy to obtain mortgages at the lowest levels in history.
Banks have been vying with one another to post record–low three-and-five-year fixed-rate mortgages. Low ‘posted’ bank rates are particularly helpful to first-time, high-ratio mortgage buyers who must qualify for their loan based on the Bank’s posted rate — as opposed to the discounted rate they may in fact be offered. With a higher posted rate, such buyers have a harder time qualifying for a mortgage.
Nationally, the average home price of a single-family dwelling has, for the first time, exceeded $400,000 — largely driven by sales and price activity in the Toronto and Vancouver markets. This remains a grave national concern. Should interest rates spike upwards, many home owners could find their mortgages to be much less affordable. Added to this concern is the fact our level of home ownership, at near 70 per cent nationally, is also at an all-time high.
The federal government and CMHC continue to take action to dampen the enthusiasm of real estate markets nationally. CMHC, in particular, has tightened its requirement for proof of income of self-employed individuals. It has also cancelled high-ratio mortgage insurance for homes valued at over $1 million and for secondary homes, such as investment properties and cottages — all in an effort to avoid a hard landing for national real estate markets if, and when, interest rates rise. All these mortgage-tightening efforts however, continue to be neutralized by the record-low interest rates currently available.
We have been expecting the inevitable interest rate increases for the past several years - only to see rates hit yet another record low.
With North American and world economies still somewhat sluggishly recovering from the 2008/09 recession, any interest rate increases are likely to be slow in coming, and to be quite gradual when they do. If so, Canadian real estate should avoid a hard landing.
Regardless of future rate movements, today’s home owner or home buyer should not expect long-term home value increases to match those of the past decade. Our changing demographic - more seniors and fewer first-time buyers — suggests that Canadians will be fortunate to see in the next decade, an average price increase which matches inflation.
A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his recent Second Edition of TheSmart Canadian Wealth-Builder.
Contact Panorama Rec. Centre to register for Peter’s Elder College Fall session – Financial & Investment Planning for Retirees & Near-Retirees (Thursdays, Sept. 18 to Oct. 16).
