British Columbia Real Estate Advice for 2013
British Columbia Real Estate for 2013
Real estate is always effected by Global as well as local factors. Global factors include timing, trends, cycles (buy when the real estate cycle is down and sell when it is up), inflation (if you believe in inflation you want your money in hard assets like real estate) and deflation. Local factors include inward migration (the more people moving into your town, the higher real estate prices will be pushed), job creation (more high paying jobs will also lead to real estate prices increasing), affordability (if prices exceed affordability, there will be less buyers which will lead to a drop in real estate prices), interest rates (as long as the Global economy is in a recession, interest rates will remain low making it easier for people to buy), supply and demand (the lower the supply, the greater the demand).
You make the most money on real estate when you buy which means if you pay too much for a property you will make less when you go to sell. You have to do your research, know market trends, know where growth is headed and find a good deal. People have made millions off of the stock market and people have lost millions on the stock market. The same is true for real estate. If you are not smart, yes, there is the potential to lose money in real estate but if you are smart and educated on the market there is the potential to make significant money in real estate. Real estate remains the number one overall wealth builder in history! Yes there are ups and downs but overall real estate has outperformed every other investment vehicle.
Timing is everything! You must understand real estate cycles. If you have purchased any home in Vancouver in 1990 and sold in 1995 you would have made money because that was an up cycle. If you bought in 1995 and sold in 1998 you would have lost money as that was a down cycle. If you had bought in 1998 and sold in 2000 you most likely would have broken even as there was not much movement in pricing from 1998-2000 in Vancouver. BUT if you have purchased in 2000 and sold today you would have made close to 300% profit! It has nothing to do with location and everything to do with timing!
The Okanagan real estate market has been stagnant for the past several years, that is about to change. Why? Because the greatest number of Baby Boomers will be retiring in 2014. Where do most Baby Boomers want to retire? Somewhere warm! Less and less Canadians are buying retirement homes in the States due to high health insurance, travel expenses, income taxes they owe to the States if they stay for more than 6 months, etc. Many Canadians are deciding that the hassles are just not worth it anymore and are choosing to buy in Canada and simply vacation for a few months in the States at a rental home rather than owning in the States. This is good news for the Okanagan real estate market which boasts hot summers, very little rain, temperate winters, vineyards, orchards, an international airport and a $250 million addition to the Kelowna General Hospital. The Okanagan is a fabulous real estate market to invest in 2013! The timing is right to purchase in the Okanagan when you look at cycles, timing, inward migration from baby boomers and job creation from the new hospital addition. Great areas to buy investment properties are in Kelowna North (the downtown core) and Kelowna South (around the hospital). These areas have great amenities, are close to the lake, low vacancy rates, bus routes for tenants and walking distance to grocery stores and shops.
Vancouver is in a slight down cycle right now. Prices will be higher in 5-10 years but now is a really great time to go in with low ball offers and pick up some great deals. As of today, March 14, 2013, there are 367 foreclosures in the Vancouver, Fraser Valley, Chilliwack area. Currently the 5 best suburbs in Vancouver for cash flow are Port Moody, Coquitlam, Abbotsford, New Westminster and Burnaby. You can also find great deals in North Vancouver and Vancouver East. These areas are close to the downtown core yet are a fraction of the price of Coal Harbour residences. There is a condo in foreclosure in North Vancouver listed for only $197,500. There is an accepted offer of $197,000 and they are currently waiting on a court date.
I say that prices in Vancouver and the Okanagan will go up in 5-10 years because of inflation. Inflation occurs when the government prints money. The more money that is printed the less that paper money is worth. I was in Mexico a few months ago. It cost me 30 pesos for a coffee. Could you imagine paying $30 Canadian for a coffee? It sounds absolutely absurd but it will happen one day. My hair dresser was saying the other day that 20 years ago she couldn't spend $20 at the grocery store, now her grocery bill is over $150 each week for the same items she used to buy 20 years ago. This is inflation and it is not going to stop. When you have inflation you want your money in hard assets. Yes, real estate is a hard asset! Cash is not a hard asset.
If you purchased an average single family home in Vancouver in 1960, that house would have cost you $13,105. Your 5% down payment would have been $655.25. That's right folks - for the same price as you would buy a bicycle today you could have purchase a HOUSE in Vancouver back in 1960. I actually have a friend whose parent sold two bicycles back in the 60's to be able to come up with the down payment to buy their house. That same house in 1970 would have cost $24,000, in 1980 = $100,000, in 1990 = $230,000, in 2000 = $206,000 and today that same house would be worth approx $1,200,000. For an investment of $655.25 your return would have been $1,199,344.75. Here's a fun fact for you - if back in 1960, instead of buying a house you put that $655.25 under your mattress, do you know how much money you would have today? That's right $655.25. That is the difference between having your savings in a hard assets vs. cash. Hard assets rise in value as inflation rises. Cash does the opposite, it decreases in value as inflation rises. Milton Friedman once said "inflation is the result of an increase in the quantity of money and debt within an economy. Inflation is primarily a monetary phenomenon."
Real estate cycles on average last 6 years: 6 years of an up cycle and 6 years of a down cycle. Over the last 40 years we saw cycles change in: 1974, 1981, 1987, 1992, 2001 and 2008. If you look at history 2014 should be the next up cycle. You look to the past to predict the future.
I hear people argue all the time that Vancouver real estate is not affordable ergo prices must go down. New flash - Vancouver real estate prices have not been affordable for the last 25 years! It takes the average person in Vancouver 60% of their income to pay their mortgage payment (affordable is 35%). If you want affordable go to a small town. If you want Manhattan, Hong Kong, London or Vancouver, you're going to end up paying for it. Vancouver prices are not going to revert back to mortgage payments being under 35% of average incomes. It's just not going to happen. People who have been sitting on the sidelines for the past 25 years waiting to buy when prices drop are the ones who lost out. Those same people will be sitting on the sidelines in 25 years. You don't wait to buy real estate, you buy real estate and wait.
I have many clients who complain that they cannot afford to buy a property. When I crunch the numbers for them I usually discover that the can afford to buy a property. What they can't afford is their dream house in their dream neighborhood. They can afford a decent property without all the upgrades in a safe neighborhood. Buyers need to be realistic with their goals. Would you rather a larger property a few miles outside of the city or would you rather a small property downtown? The smart move is to buy a property that works for you now, build up equity, sell in a few years and use that equity to buy something large or closer to town and slowly work your way up to your dream property. You have to remember that Rome wasn't built in a day.
2063 Dunn Place in Chilliwack is a 2,010 square foot home built in 2003 with 4 bedrooms and 3 bathrooms with the potential to add a 1 bedroom in-law suite in the basement listed for $278,900.
3360 53rd Ave W in Vancouver West is a 5,942 square foot home built in 2005 with 5 bedrooms and 7 bathrooms listed for $5,688,000.
Not many first time buyers are going to be able to qualify for 5,942 square foot house in Vancouver West. 2063 Dunn Place on the other hand is within the grasps of many first time home buyers especially if you add rental income for a 1 bedroom suite. Of course you could always just win the PNE lottery and have a house given to you for free. I think I might do that this year.
Best wishes on achieving your real estate goals. As always, you know I'm here with honest advice and help if you need it!
Lake Okanagan Realty