Anyone with a correct understanding of the situation will have told you that the overheated housing market in Vancouver has primarily been the product of 2 factors. The first being demand far exceeding supply given the rate of population growth for the city, and the second – and likely the most influential one – is cheap money. What’s meant by that for anyone who might not have an understanding of economics is that it hasn’t cost much to borrow money in Canada for quite some time now. Interest rates needed to rise as it is and now that inflation needs to be repressed there was no choice for the BoC to raise the rates.
The market did need to return to some level of normalcy, and that’s true whether you’re a homeowner or a person who is looking to buy a home. That’s because people of average incomes should be able to afford a home that fits their family, and a city cannot forget that when creating policy. But what we are seeing now with Vancouver real estate will be bringing the value of homes down. Will they come down to the point that many more people will be able to buy a home?
That remains to be seen, but in a city like Vancouver you will see modest value decreases and overall it’s not a bad thing.
This will affect realtors working with certain clients and especially those who are looking to buy. But there will also be homeowners who will put off putting their home on the market to wait and see if home values in the Lower Mainland go up again in the future. Considering this has always been cyclical (albeit with some long cycles) that is likely, It can all be contributing to struggles gaining and retaining clientele and if so realtors are encouraged to use our online real estate lead generation service here at Real Estate Leads.
But more to the interest of realtors as it relates to this is that clients may be wanting to abandon purchasing commitments, and that’s a scenario realtors in this part of the province may have little to no experience with. Let’s look at the real estate cooldown in Vancouver in more detail here, as modest as it will likely be.
The fact that many economists believe there is no way Canada is going to avoid a recession in the near future may well factor into all of this too, and again especially with regards to real estate in Vancouver or Toronto. We’ll see how painful the hit to the housing market will be for homeowners. Again for Vancouver and Toronto high immigration and migration from elsewhere in Canada may stimulate sufficient demand for housing to make any recessionary blow less impactful.
Right now there are areas of Vancouver where homes have sold for about 15% less than similar area houses did a few months ago. But as mentioned what we are also seeing is some homebuyers giving thought to walking away from their deposits and cancelling purchase commitments. Well, it’s not that easy and there can be repercussions, including lawsuits from others involved to compensate for any lost money.
For example, let’s say a home involved in a cancelled sale sells at a later date for a 10% discount. It is possible the courts could state the original contracted buyer who walked away from their purchasing commitment must now compensate the original owner for the difference in the home’s value.
Mortgage Factors Too
New and 1st time homebuyers will have difficulty finding a 5-year fixed mortgage for less than 4% today, while last year that same mortgage may well have been had for 1.5% or only slightly higher if at all. The Vancouver Real Estate board has stated that the benchmark price for all residential properties in Vancouver had a 1% price increase in April compared with March.
However, many industry experts and knowledgeable realtors will say this is an unreliable indicator of the current market because of its algorithm that determines what exactly a benchmark property is. Long story short, many of these people will see you won’t see real price declines in that home price index for at least 6 months, and probably longer.
Also consider Canada Mortgage and Housing Corporation’s April forecast suggested the country’s average home price would be around $782,400 by the end of the year, a drop of 1.7% from $796,000 in March. This will result in mortgages being more expensive, which may again take out the pool of qualified buyers who might want to consider purchasing a home at this time because of moderately lower prices.
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