content from the Fraser Valley Real Estate Board, written by Paul Penner, President
I’ve been reading and hearing more talk of an overheated real estate market lately. Headlines warning of a "bubble" forming and alarms sounding of a pending correction.
Even our Finance Minister, Jim Flaherty threatened before Christmas that the government could and would tighten mortgage conditions if they felt Canadian buyers were creating an "asset bubble" by reaching beyond their means with the current low interest rates.
I can’t speak to the rest of Canada, but here in Fraser Valley, we know from our informal member market polls that in November and December, the majority – 60% – of buyers took out conventional mortgages and only 40% put less than 25% down.
It’s true that many of those higher risk mortgages are held by first-time homebuyers who don’t have a lot of wiggle room, but at risk of sounding like I’m getting into the forecast business, all signs indicate that interest rates are likely to remain low for longer than we expected.
Also, our market has recovered. It’s not just me saying so. Like I tell my clients, the proof is in the numbers.
Sales in the Fraser Valley hit bottom in January 2009 with only 389, the lowest in the current cycle, in fact, the lowest since 1984.
Twelve months later in December 2009, sales returned to 1,260, the third highest December on record.
Our Housing Price Index (HPI) lost ground in 2009 dropping the value of a typical detached house in the Valley to just over $452,000 in January. It has since recovered to $497,732, still shy of the $514,000 peak in spring 2008.
Yes, I admit the pace of the recovery surprised most of us, but if you look at the stats in detail you’ll notice there is a great deal of stability.
Since July of last year, our monthly sales volumes have ranged between 28% and 40% of the 10-year-average sales for the same month – healthy numbers, not ‘over the top’. And the other statistic that gives me comfort is one that I referred to above, the amount of equity most buyers bring to the transaction.
Canadian homeowners have, on average, 74% equity in their house, compared with 40% for Americans. This equity acts as a buffer during economic slowdowns and helps to keep panic out of the market.
Perhaps Warren Buffet said it best; "It’s only when the tide goes out that you learn who’s been swimming naked." Many of our neighbours to the south have been skinny-dipping; while in true Canadian style we have been more conservative.
Copyright Fraser Valley Real Estate Board. Reprinted with permission.