Some may say I am crazy for even attempting to answer this question, as the number of variables make it near impossible to predict, but seeing as it the question on everybody’s mind at the moment, let me take a shot. The question, of course, is:

“What is going to happen to the Vancouver real estate market after the Olympics?”

Now, if I truly had a crystal ball, I would have cashed in big time long ago and would probably be writing this newsletter from a lounge chair on the beach. That said, in my mind, it is much less a question about WHAT will happen then it is about WHEN it will happen. Allow me to explain...

At some point mortgage rates have to go up. They HAVE to. The historic average for fixed rate mortgages sits somewhere around 6%. We have been at, or below, 4% (historic lows) for almost a year now. On the variable side, the Bank of Canada has committed to holding the prime lending rate until the June 2010. After that, it would appear to be a safe assumption that rates will start to climb upwards. When exactly the rate increases start, and how sharply they rise, is yet to be determined, but I would be shocked if we didn’t see changes by the Fall of this year.

What will these rate increases mean to the housing market? Well, with increased rates, the cost of borrowing natural increases as well. For those that are stretching their budgets to make a purchase, this will mean that will now be able to afford less. The same monthly payment will buy you “less house”, if you will. This reduced buyer power will naturally lead to some downward pressure on housing prices towards the end of the year and into 2011.

If you are now wondering whether this means you should be buying now or waiting until next year, the answer is not quite as simple as waiting for prices to turn downwards. First off, any decreases we see towards the end of this year may be offset by the price gains we see over the next few months. Secondly, if you are using financing for your purchase, and home prices do indeed start to trend downwards, it will likely correlate with rising mortgage rates - meaning your cost of borrowing will be higher. 

 

And, of course, the one thing that can always throw a wrench into the Vancouver market is the influx of foreign buyers. Even when all the local economic fundamentals point in a certain direction, strong movement into, or out of, Vancouver from overseas can have an affect on the market that is difficult to predict. In what is now a true global market place, ignoring the impact of external factors can mean you are missing a large portion of the equation.

Ultimately, the decision making process in a changing market is complex and individual. If you have any questions or would like to discuss your situation with me, please don’t hesitate to ask.