PETER DOLEZAL: Real estate prices in Greater Victoria – sustainable or not?

In attempting to answer this question, we need to consider the key market facts, and other influences affecting our area.

Greater Victoria’s real estate prices continue on a seemingly-unstoppable upward trajectory. Can this really continue?

In attempting to answer this question, we need to consider the key market facts, and other influences affecting our area:

• For a local family to afford a median-priced home of $542,000, Greater Victoria prices now require 8.1 times the median annual income of $67,300. Based on this very high affordability index, we are now considered the least-affordable of the smaller housing markets in Canada.

Nationally, our real estate prices rank third-highest, behind only Vancouver and Toronto.

In the past 12 months the average sale price of a single-family home in our area has increased by a sizzling 27 per cent. Also in the past year, approximately 25 per cent of local property sales were over the listed price.

The Federal government’s recent tightening of mortgage-qualification rules is aimed particularly at the all-important first-time buyer. Given these facts, logic would suggest that our current prices are not sustainable, and should reverse, sooner than later. On the other hand however, a number of factors continue to support rising prices:

• Interest rates, despite a recent but minor upward blip, remain at extremely low levels. Buyers with sufficient income, and a solid credit rating, can easily lock in a five-year mortgage term at an interest rate well below three per cent.

• The B.C. government’s recently-implemented interest-free down payment loan-matching program, up to $37,500 for first-time buyers, has effectively neutralized the Federal government’s tightening initiatives on that segment of the market.

Based on February, 2017’s 675 property sales, and a record-low 1,537 listings, our sales-to-listing ratio stands at an unprecedented high of 44 per cent, higher even than Vancouver’s 33 per cent. A ratio below 15 per cent is generally considered to be a Buyers’ Market, with downward pressure on prices.

A Balanced Market tends to fall in the 15 to 20 per cent range; above 20 per cent is considered to be a Seller’s Market.

Despite new-home construction continuing at a record pace, it will take some time to catch up to the market’s demand for housing.

Demand remains unabated, supported by buyers relocating from the still torrid-priced areas of Vancouver and Toronto, along with a modest increase in foreign purchasers seeking to avoid the 15 per cent surtax now in effect in Greater Vancouver.

With our 44 per cent sales-to-listing ratio, we are clearly in an extreme upward price-pressure position, as evidenced by the huge increases of the past 12 months.

For now, barring further strong Provincial or Federal Government intervention, and/or significant interest-rate increases, it would seem likely that Greater Victoria’s upward price pressure is destined to continue for some time – though likely at much more modest annual rates than those seen in 2016.

Sellers will cheer this likelihood; buyers will continue to scramble to find a suitable home; and our real estate prices will continue their climb toward “bubble” territory, and the inevitable correction. The only question is how long the sellers’ party will last.

 

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.

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