Greater Victoria’s housing prices, both median and average, continue to defy significant downward price adjustment despite major caution flags.
May showed the average single family home selling at $609,000. Even after stripping out the impact of high value sales, including 24 over $1 million, the median price registered at $534,000 – more than seven times the average Canadian household’s annual income. Across Canada, only Greater Vancouver registers as less affordable.
Across the U.S. prices have fallen more than 30 per cent, to a single family house median price of $177,000. Yes, we do live in a prime area of Canada, but is it really logical that our home prices are more than triple those of properties in the U.S. and almost twice those of the average across Canada?
Our region’s current listings have topped a near-record 5,100 units. Based on 600 sales in May, this is roughly eight months of inventory levels. Even in the still soft U.S. market, inventory stands at a more modest six-month supply.
Over the past year, we have seen some minor softening in prices, particularly in the condominium and townhome sector – but much less than might have been expected.
Aside from our idyllic setting, to what might we attribute this phenomenon of our real estate prices continuing to defy gravity?
Undoubtedly our demographic plays a role. With a far greater proportion of retired residents, it’s reasonable that the need for housing mobility is far less among our population. We would thus expect the proportion of mortgage-free
households in our area to be much greater than the Canadian norm. These factors combine to allow many home sellers to hold prices for longer periods, even if doing so results in a much longer sales cycle, or even no sale. When housing mobility is discretionary, rather than necessary, prices are better supported.
Probably a far greater factor is the continued availability of mortgage funds at historically low rates. Local mortgage brokers are currently offering five-year fixed rates at 3.19 per cent, and 10-year rates at 3.89 per cent. This provides major price support to residential real estate, as new owners are able to enter the market, or existing owners to upgrade their homes.
With the Bank of Canada and the Minister of Finance publicly worrying about household debt levels, we are likely to see a further tightening of mortgage borrowing rules. As well, interest rates will begin to rise.
When these realities materialize, our real estate prices will be affected. An overinflated balloon can stay up only for so long. Eventually, it loses air and sinks. We can only hope our real estate balloon doesn’t burst dramatically.
On a related thought, for the first time in over 50 years, the security of locking in to a five- or 10-year fixed mortgage at the current low levels far outweighs the short-term rate advantage of a variable-rate mortgage.
More so than in the past several decades, local buyers need to view their residence not as an asset purchased for capital gain, but rather as a comfortable place to proudly call home.
Given the red flags waving over our real estate market, I for one, will be most pleased if 10 years from now, our home has shown an average annual price increase of two per cent compared to the sizzling seven per cent annual average of the past decade.
A retired corporate executive, Peter Dolezal is the author of three books. His most recent book, the Smart Canadian Wealth-builder, is available at Tanner’s Books and other bookstores.