At a rate not seen for several years, “SOLD” signs are popping up all over Greater Victoria. Compared to 2014, year-to-date property sales are up almost 27 per cent, while the number of listed properties is down some 13 per cent.
With a monthly sales-to-listings ratio exceeding 22 per cent, our real estate market has shifted firmly into a “seller’s market.”
Generally, when this occurs, prices are expected to increase. Fortunately for local buyers, the price increase for a typical single-family home has risen by only a modest 4.4 per cent over the past year — far below the almost insane price escalations in Vancouver and Toronto.
Modest price increases, such as we are experiencing, help insulate us from future, drastic market corrections.
Purchasers in both Vancouver and Toronto are buying into a much riskier downside. With the recent drastic downturn in oil prices, property sales in Alberta and Saskatchewan are already rapidly declining, as are their values. We however, with our solid local economy and our natural attractiveness to snow-bound Canadians, have been fortunate in escaping such wild market gyrations — at least thus far.
What drives this market momentum, not only in British Columbia, but also to a large extent, across Canada?
We need only to read ads offering special five-year fixed bank mortgage rates of 2.74 per cent, and even as low as 2.54 per cent from some mortgage brokers.
Competition in the mortgage market remains fierce; those currently buying for the first time or renewing mortgages are the beneficiaries. Although both U.S. and Canadian central banks continue to debate the raising of rates, they have yet to do so.
Bond interest rates, to which mortgage rates are tied more directly, remain at historic lows.
The result is that currently, a qualified home purchaser can obtain a mortgage with a 25-year amortization for roughly $462/month for every $100,000 borrowed. Such low rates allow record numbers of first-time buyers to jump into the market — and with the “bottom-up” effect, market momentum is stimulated at all price levels.
There are however longer-term downsides to the current scenario.
Firstly, rates will go up eventually — almost certainly within the next 12 months. If the increases are gradual, the dampening effect on real estate markets should not be severe.
However, the pool of remaining entry-level buyers will have been greatly reduced — many having already jumped into home ownership when rates were very low, thus substantially moderating a key driver of real estate market activity.
The combined effect of these changes will eventually reduce sales activity, and hence price levels. Hopefully, our local area’s continued attractiveness will counteract some of the negative effect on our region — it will not however, insulate us from it.
Today, for the astute, well-priced local seller, it is a very good time to list — the likelihood of success is high.
For the buyer, with record-low rates available, and an environment of modest price increases, locking in a five-year fixed rate mortgage in today’s market may be a very timely move.
A cautionary note: Variable-rate mortgages, while the better choice over almost all of the past 50 years, have currently lost their lustre.
For example, one major bank is advertising both a five-year variable-rate mortgages at 2.85 per cent, and a five-year fixed mortgage at 2.74 per cent!
Accepting a high risk of future rate increases — at a greater cost — makes little sense.
We are currently in the midst of a rather vibrant real estate market.
Hopefully it will remain healthy for some time to come — without major gyrations in either direction.
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 most recent, The SMART CANADIAN WEALTH-BUILDER.