Despite both the latest press release by the Victoria Real Estate Board that the Greater Victoria market is flat and a recent newspaper article reporting housing affordability in the region has improved, down to 42.2 per cent of family income for a detached bungalow, the facts are clear.
Housing activity and prices continue to decline by most measures. August unit sales of all properties were down by 17 per cent compared to a year ago, while listings were up two per cent. At this rate.
Housing affordability has indeed improved. However, it is important to realize that it remains difficult to obtain a mortgage if a family borrows more that 32 per cent of family income for the projected cost of ownership – fully 10 percentage points below our current “improved” level of affordability. The key reasons for the improvement in affordability are the softening prices, combined with a dramatic decline in mortgage rates.
Locally, all categories of housing have now returned to a their approximate price levels of August 2010. The modest price declines this year have been tempered by the historically-low interest rates. In early September, the best rate available through Mortgage Brokers for a five-year closed mortgage was 2.89 per cent; for seven years, it was 3.59 per cent. With rates this low, a mortgage with a five-year term and a 25-year amortization will result in payments of only $468 per month for each $100,000 borrowed.
While these low rates are the key reason for our relatively modest price declines, they also highlight the vulnerability of future house prices to rising interest rates. Significant increases are probably several years off, but they will inevitably occur.
It is not my intent to spread doom and gloom about our housing prospects. Rather, it is to ensure sellers understand the market and price realistically, if they expect their home to sell.
Buyers need to realize they have moved to the driver’s seat. It is clearly a buyer’s market; they need not be rushed into making a deal. A buyer’s patience is far more likely to be rewarded.
The real estate tide is turning; it has not reached its low point.
A retired corporate executive, enjoying post-retirement as a financial consultant, Peter Dolezal is the author of three books. His most recent, The SMART CANADIAN WEALTH-BUILDER, is now available at Tanner’s Books, and in other bookstores.