To paraphrase an old cliché, you would have to have been living under a rock to not know that Vancouver is home to Canada’s highest real estate prices. According to the Real Estate Board of Greater Vancouver, as of May 2012 the average price of a detached home in the west coast city is $1,073,018. And that’s actually a 12 per cent drop from May 2011! Even when you add in townhomes (averaging $551,445) and condos (at $460,671), the overall average sales price tops $625,000. Not cheap – and close to nearly double the national average of $375,810. But by all accounts, the rise is predicted to slow. So, what does this mean if you’re looking to be a first-time home buyer in Vancouver? There are a few things to consider, including global economics, mortgage interest rates, and the local rental market.
Global Economics and Mortgage Rates
Thankfully, the Great Recession never developed into a Depression (knock on wood!). But while the U.S. housing market seems to be stabilizing in many urban centres, nervous glances have been cast towards Europe over the past couple of years.
In its April 17, 2012 rate announcement, the Bank of Canada optimistically predicted that “Europe is expected to emerge slowly from recession in the second half of 2012.” But just a couple weeks later France turfed out President Nicolas Sarkozy, and fractured Greek voters failed to find enough consensus to form a coalition – sending them back to the polls. In addition, Spain remained mired in recession and double-digit unemployment.
The upside to all this uncertainty for home buyers is that the BoC will most-likely leave rates unchanged until at least early 2013.
Rent To Own
As with the housing market, Vancouver leads the nation in highest average rents. According to the Canada Mortgage and Housing Corporation (CMHC), the average monthly rent for a two-bedroom apartment in the city is $1,210. Vancouver’s vacancy rate dropped to 2.6 per cent in April 2012, compared to 2.8 a year earlier.
How does this impact home ownership? For one, the rental market is generally the first foray new immigrants make when looking for a place to live. A low-rental vacancy rate indicates that there are a lot of people looking to live in the city – an indicator of just how much demand there is to live in Vancouver.
A robust rental market can mean big benefits for would-be homeowners willing to look into a duplex property. A tenant contributing $1,200 towards your monthly mortgage can make the difference helping you get your foot in the proverbial door.
To Buy or Not To Buy?
The answer really comes down to your own financial situation. In Vancouver, condos truly are the starter homes. But without $92,000 available for a 20 per cent down payment on that average condo price, you’re going to be in a high-ratio mortgage, meaning you’ll need to buy mortgage insurance from the CMHC or another third-party insurer.Quick tip: avoid paying more than you need to for your mortgage by checking out the services of a mortgage broker. They’ll comb the market to find you the best rates, and the bill is footed by the bank you end up going with.
Add in the land transfer tax, lawyer’s fees, and other closing costs, and you’re looking at needing a nest egg in the low six figures to join the ranks of the city’s homeowners.
For those looking to buy in Vancouver, check out the best mortgage rates here.