Market confidence is the key
Market confidence is the driving force behind the high housing prices in Richmond and Greater Vancouver. The credit crunch of 2008 scared home buyers away from buying, resulting in home prices declining 15%. Rapid and successive cuts interest rates by the central Bank of Canada Canadian from early 2008 drove base-lending rate down from 4.25% to 0.25% by April 2009. Current rate stays at 0.25%. Low interest rates helped to boost demand for homes, and within a year home prices almost regained all the losses.
|
Month
|
Total Active Listing | Av. 3 Month Sales |
List/Sale Ratio |
| FEB/08 | 1320 | 309 | 4.29 |
| MAR | 1545 | 359 | 4.30 |
| APR | 1830 | 423 | 4.33 |
| MAY |
2075 | 438 | 4.73 |
| JUN |
2335 | 411 | 5.68 |
| JUL | 2495 | 352 | 7.09 |
| AUG | 2430 | 270 | 9.00 |
| SEP | 2530 | 233 | 10.86 |
| OCT | 1540 | 196 | 12.96 |
| NOV | 2495 | 164 | 15.21 |
| DEC | 2080 | 126 | 16.51 |
| JAN/09 | 1750 | 101 | 17.33 |
| FEB | 1820 | 139 | 13.09 |
| MAR | 1685 | 211 | 8.97 |
| APR | 1673 | 321 | 5.87 |
| MAY | 1550 | 421 | 3.68 |
| JUN | 1540 | 503 | 3.06 |
| JUL | 1416 | 570 | 2.48 |
| AUG | 1410 | 564 | 2.50 |
| SEP | 1435 | 560 | 2.56 |
| OCT | 1405 | 531 | 2.65 |
| NOV | 1273 | 518 | 2.46 |
Facing the inevitable - higher interest rates
How long the current low interest rates environment can be maintained is anyone's guess? By 2006, home prices in Richmond already reached an over-heated level. Buyers who purchased their homes the past 3 years will not have a large cushion to buffer them from a large drop in home prices.
Outlook for the next few years
The current over-priced market will correct sooner or later. When market sentiment turns negative, demand from home buyers will collapse. When home prices are losing values, more sellers will want to sell their homes, increaasing the supply causing a rapid decline in home prices. As shown in my earlier post, there is a large price gap between current home prices, and the break-even price point for real estate as an investment.
Real estate as an investment
At current price level, the risk of capital loss due to declining home prices is extremely high. The return on investment for a rental property in Richmond and other Greater Vancouver cities is negative. Home prices will have to decline significantly before a reasonable return on investment can be expected.
Click the link to view Vancouver and Richmond homes currently listed for sale.
