CMHC spring housing market outlook
By ebizniz on June 2, 2007 - 8:49pm
CMHC spring housing market outlook report is bullish on Vancouver's housing market, inspite of the housing slump in the U.S., recent strong run up in the Canadian dollar approaching parity with the US dollar.
The report said, "As a result of strong demand and escalating construction costs, the average price for new single detached homes climbed 16 per cent in 2006. Look for new single family home prices to grow at about half that rate over the next two years". The full CMHC spring housing market outlook report can be viewed here.
This is a tough call to made and expect Vancouver's housing market to remain strong into 2008. No where was it mentioned that Vancouver's house prices is already the "highest" in Canada. Take a look at how Vancouver's prices compared with other cities in Canada as per Brain Ripley's Housing Price Charts.
Based on April's average price for detached home, townhome and condo in Vancouver at $695,000, $430,000 and $360,000, and borrowers applying for 75% financing will have to earn $130,000, $80,000 and $68,000 respectively to qualify for the loans. With the average Greater Vancouver's family income under $70,000, home buyers cannot be approved for 75% financing for townhomes and detached houses.
No where was it mentioned in this report, the average Vancouver home buyer is facing affordability problem to be approved a home mortgage. Canadian banks are approving loans based on the ability of borrowers servicing their mortgage obligations. It' not the good economy, tight rental market or low interest rates alone that drive demand for housing. The strong price gains are more due to excess world wide liquidity and buyers willingness to invest in real estate for price gain.
The strong demand for 2006 for housing in Vancouver as reported in the CMHC spring housing outlook report cannot be attributed to the above factors alone. What's overlooked is the fact that expectation for price gain is driving demand for housing for the past 5 years. Investors and speculators are hoping to cover their negative cash flow with spectacular price gain. Any smart investors will bail out when the market turn south.
If investors or buyers become bearish on their investment in real estate, the demand for housing will drop, and buyers become sellers. The problem with real estate investment is the effect of leverage, compounding the lost in equity when prices are dropping. In Vancouver, holding a real estate for rental income with no hope of price appreciation is a losing proposition as the investment is bleeding cash.
The direction for the market is best monitored by the supply demand and price data being reported by the various real estate boards in Canada. Stay in touch with the housing numbers, and you will know when to quit. After all, when the dust settles, you can always pick up some good deals.
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