Now for the good news
Vancouver may have slipped to fourth place in this year’s ranking of the investment appeal of Canada’s major cities in the Emerging Trends in Real Estate report from PricewaterhouseCoopers and the Urban Land Institute (ULI), but report author Jonathan Miller doesn’t feel that’s anything to fret about.
“I don’t have to tell you: You’ve got a good thing going,” he told ULI’s B.C. chapter last week in a presentation at the Terminal City Club. “You should do very well over time here. We don’t think you need to be too concerned.”
Respondents to the survey, which underpins the annual report, cited bureaucratic hurdles in Vancouver as well as a dip in housing markets and an unemployment rate that’s within a percentage point of that in the U.S. as factors working against investors.
“It’s not as if things are on all cylinders here, but you’re better than everywhere else,” Miller said. “Compared to everyone else, we’ll do very well here, but growth trends will be mediocre.”
Vancouver, notably, hasn’t actually slipped in investors’ estimation. On a nine-point scale from “abysmal” to “excellent,” Vancouver scored 6.1 this year. That’s down from 6.6 in 2012, ahead of the 5.8 received in 2010 and 2011 and equal to 2009, when the city ranked ahead of the rest of the continent.
“You see a very kind of steady performance,” Miller said.
Unaffordable, again
Vancouver might be fourth in the country as a place to invest, but it remains in first place when it comes to unaffordable housing. The latest RBC Economics survey is dour reading, noting that even a significant correction in Vancouver housing prices has done little to improve housing affordability in the city.
“The most significant improvement in housing affordability among Canada’s largest cities in the third quarter barely dented Vancouver’s unaffordable status and did little to stop the market correction that has been unfolding in the area market since spring,” the report’s authors opined.
Owning a home at market prices still requires a whopping 87% of household income for a two-storey home, 83.2% for a detached bungalow and 42.2% for an apartment.
“We expect poor affordability to continue to weigh heavily on homebuyer demand and apply sustained downward pressure on home prices in the near term,” RBC said, compounding price declines of up to 4.9% in the third quarter alone.
RBC pegs the price of real estate in Vancouver at $836,200 for a two-storey home, $805,300 for a bungalow, and $399,500 for an apartment – “extremely tough hurdles to clear,” in the bank’s opinion, for prospective homeowners.
Ditch the debt
A combination of poor affordability and high prices hasn’t made things any easier for first-time buyers, and a Canadian Association of Accredited Mortgage Professionals (CAAMP) report notes that changes to mortgage rules are also weighing heavily on buyer activity.
Nationally, the report estimates that changes to mortgage qualification criteria have eliminated 9.3% of prospective homebuyers from the market. It notes that this is relatively consistent with the 7.8% drop in home sales between July, when the changes took effect, and the report’s publication. The mortgage changes occurred despite what CAAMP deems “prudence” on the part of owners.
While approximately 11% of homebuyers since 2010 would have been shut out by the new 25-year amortization limit, actual mortgage repayment periods over the past two decades have generally been just two-thirds of contracted periods.
Moreover, 32% of borrowers accelerated repayment during the past year. This is consistent with the advice bankers like Carolyn Heaney, area manager, specialized sales with BMO Bank of Montreal in Vancouver, have been giving.
While longer amortization periods improve up-front affordability by reducing monthly payments, Heaney noted that a longer amortization period also means consumers carry debt longer – something that isn’t always in their interest.
“Our philosophy ... is fitting people into what they can afford as opposed to trying to put them into greater and larger mortgages.”
Heaney added that consumers seem to be aware of this too.
“People are very much aware of mortgage debt, and they’ve really equipped themselves with the mortgage tools to get out of that debt quicker.”
