Amy Hoak
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It used to be a no-brainer: Buy. Period.

Over 70% of Canadian households are owner-occupied, and home ownership has always been seen as the road to financial stability. 

But in Metro Vancouver, housing is the least affordable in Canada. Buying a detached bungalow will eat up 91% of an average household’s income, and buying a condo will take around 45%.

Considering property taxes, utilities, insurance and the costs of maintaining a home — on top of mortgage payments — renting may be a better option for some people.

This article from the Wall Street Journal sets out six factors to consider when you’re deciding whether to buy or rent. And while the article was written for Americans, whose real estate market has been in the basement for three years, these six steps to making a buy-or-rent decision will work for any market:

1. Examine the housing market

2. Consider additional costs

3. Look into the future

4. Look into your personal future, too

5. Consider your personal finances

6. Think a bout opportunity costs
 

Making a New Case for Home Buying

As another year of the housing downturn ends, some are wondering if it finally is more advantageous to buy instead of rent, given discounted home prices and mortgage rates near historical lows.

The answer not only depends on where you live, but also your personal finances, the stability of your job and what you expect for home prices and rental rates in the years ahead.

Historically, renting has been the better choice, according to recent research.

Renting was the better move about 75% of the time, according to “Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise?” a paper scheduled for publication next year.

The catch: Renters need to invest all the money they save.

“We find that if people don’t invest the money, actually about 90% of the time, you’re better off buying,” says Eli Beracha of East Carolina University, who co-authored the paper with Ken H. Johnson of Florida International University.

That’s because for many Americans, their home has become a sort of forced savings account, allowing them to build savings through home equity.

That said, the case for buying a home is getting more compelling for many, according to the report, especially as monthly mortgage payments become more competitive with rental payments.

Here are six considerations for those weighing a decision to buy or rent.

1 Examine the housing market

One metric that housing analysts will look at to gauge housing affordability is the price-to-rent ratio. To calculate the ratio, the purchase price of a house is divided by 12 times the monthly rent of a comparable home, says Stan Humphries, chief economist for real-estate website Zillow.com.

Hard-hit markets like Detroit and Las Vegas have low median price-to-rent ratios of 5.6 and 8.1, respectively, according to Zillow data. At the other end of the list, it’s still expensive to buy in New York and Honolulu, with ratios of 16.1 and 17.6, respectively.

“There is no rent ratio that is the magic number,” says Christina Aragon, Rent.com’s director of strategy and consumer insights. But in general, “the higher the ratio is above 20, the more you’d need to see a spike in housing values to justify the price that you’re paying today. If the ratio is below 15, it might make sense to consider buying rather than renting,” she adds.

2 Consider additional costs

Remember, if you choose to buy a home, your mortgage payment may be the biggest cost each month—but it’s not the only one.

There are insurance and taxes to pay, as well as regular maintenance costs, says Richard Green, director of the University of Southern California’s Lusk Center for Real Estate.

3 Look into the future

After taking stock of what the housing market is like today, you have to do some predicting about what the local economy, including the housing market, will look like in the future, Ms. Aragon says.

Are jobs coming into the area, or are they leaving town? Is there enough demand for housing that prices will rise over the time you will live there?

Right now, housing prices are still falling, and rental prices are rising in many parts of the country. Nationwide, home prices were down 4.4% in September, compared with September 2010, Mr. Humphries says. Prices may drop another 3% to 5% before bottoming, he adds.

4 Look into your personal future, too

Before buying, decide how long you plan to live in the home. If you plan to stay there for 10 years, a drop in value a year after you move in could be balanced out by many more years of price appreciation.

If you plan to live in the home less than five years, you may be better off signing a lease, Mr. Humphries says.

5 Consider your personal finances

Assess whether you have the down payment—and if that down payment would wipe out savings you might need for a rainy day, Ms. Aragon says. “Does having that burden of a mortgage mean you can’t do things that are important for your lifestyle like take a vacation or go out to dinner?” she asks.

These days more than ever, potential homeowners need to consider the stability of their jobs before they take on a mortgage. Also being able to move when you have an opportunity to advance your career may be a compelling reason to rent.

6 Think about opportunity costs

Shelling out 20% for a down payment has its consequences. That money—as well as any money you save by renting instead of buying—could be diverted to another investment vehicle.

“The down payment that you’ve lost might have been in the bank earning interest or in a brokerage account,” says Mr. Johnson. If you’re a great saver, you might be better off renting.

© 2011 REW. All rights reserved.

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Frank O’Brien
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The current downturn in Metro Vancouver’s housing market won’t continue into 2012, and the recession-like conditions from Vancouver Island to the Kootenays will change to a more balanced market next year.

That’s the premise drawn by Western Investor from hours of interviews and conferences held over the past few weeks as experts tried to forecast an industry that not only defines Vancouver but is perhaps the most important economic engine for both the city and the province.

At the Housing Outlook 2012 conference in Vancouver last month, analysts from Canada Mortgage and Housing Corp. (CMHC) sketched a scenario of suprising stability in the Vancouver and B.C. residential real estate market for next year.

CMHC forecast

The official forecast is for Metro Vancouver resales to rise 9 per cent and the average overall home price to increase 2.2 per cent from 2011 to $805,000. The average detached house price in the Vancouver area is expected to crack above $1.1 million in 2012.

For all of B.C., housing sales are forecast to increase 7.4 per cent, with the average price flatlining at $559,500, after a 3.1 per cent drop this year, according to CMHC.

Provincewide housing starts are expected to fall 2.5 per cent in 2012, to 26,700 units, though CMHC sees Metro Vancouver starts rising nearly 6 per cent next year to 18,000 units, led by condo and townhouses.

Real estate “the driver” in Metro Vancouver’s economy

Partially due to the housing sector, the unemployment rate in Metro Vancouver is forecast to fall to 7 per cent in 2012, from 7.7 per cent this year.

Residential real estate is what keeps the economy here ticking, suggested Andrew Bibby, president and CEO of Grosvenor Americas. “Housing is the driver for Vancouver’s economy,” Bibby told the November Emerging Trends in Real Estate 2012 conference presented by the Urban Land Institute. He told of travelling south through the industrial landscapes of Seattle and California’s Silicon Valley and wondering, “What does Vancouver run on?”

His suggestion that it is housing has merit: this year in Greater Vancouver sales of 33,000 resale homes will generate $26 billion. At the same time, annual new-home construction permits in the Lower Mainland are in the $3 billion range and residential construction directly employs 113,000 people, not counting realtors, mortgage brokers and other soft support. Home renovations are worth another $7 billion to the provincial economy.

“Best global real estate investment”

Another telling conclusion from the Trends conference: the best global real estate investment for 2012 is a single-family detached house in either Vancouver or Toronto. The second is a residential rental property in either city.

So the housing outlook perhaps isn’t just about what you can sell your home for: it is about the economic future of a region.

Which makes the current sales downturn in Metro Vancouver — with MLS sales tracking down for five straight months as of November and cracks showing in the new-home market — the focus of intense interest.

HST confusion

For real estate veteran Ron Toigo, the developer behind one of the most successful residential developments in Metro Vancouver — his Tsawasssen Springs in South Delta — it is all about presenting value. But Toigo echoes concerns of other home builders that confusion over the death of the harmonized sales tax (HST) threatens the new-home industry.

Earlier this year, Toigo presold 20 detached houses at Tsawassen Springs priced from $700,000 each in less than 30 days. But, after the HST was killed in a provincewide referendum this summer, he has stopped all single-detached sales. “Nobody knows how the phase out of the HST will work,” Toigo said.

At a Vancouver Board of Trade conference, Ward McAllister, president and CEO of McAllister Ledingham, a major Metro Vancouver residential developer, blasted how the province has handled the HST.

“This is really hurting us in the new-home business,” said McAllister. “We don’t have any transition rules yet. What is amazing to me is that it took three days to bring this tax in and now they are telling us it will take up to 18 months to unravel it.”

McAllister said “any of our product at $525,000 or over is just sitting.” That is the price range where there are no HST rebates. Developers are forced to make deals and discount prices, he said. The former president of the Urban Development Institute said the development industry has been “begging” for clear transition rules on the HST.

(Click here to calculate the difference between HST and GST/PST on the cost of a new home.)

A report on the west side of Vancouver new-condo market, the most expensive in Canada, confirmed that sales of new product has been declining since the HST was voted out on July 1. With 1,233 new condominiums unsold and another 4,151 units planned, sales of new condos in the market are averaging 112 per month with “the sales trend slowing through the summer and fall months of 2011,” according to MPC Intelligence. MPC, which monitors the new-home market, said the HST repeal is “negatively affecting sales of higher-end inventory.”

Still, the overall inventory of new and unsold condos in Metro Vancouver is falling, according to CMHC, with about 1,300 in the current market.

MPC said it has begun to see price discounting and buyer incentives at a number of new west side condo projects, but this may reflect aggressive pricing earlier in 2011.

Luxury market strong

All this does not faze Bruce Langois, president of Delta Lands, which is patiently selling the ultra-luxury Residences at Georgia in downtown Vancouver. This is where an $18 million penthouse condo sold early last year and where condo prices start at $1,5000 per square foot, among the highest in North America.

Langois takes the long view. “Think of searching on Google Earth for the best neighbourhoods in the world,” he said. “For the wealthy, who can buy anywhere they want, it is a very short list. And Vancouver is right at the top of that list.”

According to Citizenship and Immigration Canada, there is backlog of more than 300,000 Chinese residents who want to immigrate to Canada, and Vancouver is the preferred choice for investor immigrants, who must prove cash assets of $1.6 million. This year, an estimated 45,000 immigrants will arrive in Metro Vancouver, a level that should continue for years, according to CMHC.

Langois said he has no doubt that he can find buyers for the 40 luxury homes at the Residences of Georgia. Confidence is also seen in the new-detached market. Buyers lined up in the rain for hours last month to buy new $600,000-plus houses in Coquitlam, according to a spokesperson for Morningside Homes, which sold 14 new houses in less than four hours.

Fraser Valley

A buyer’s market has become entrenched in the Fraser Valley over the past few months, a signal of what is happening the farther one gets from Vancouver. As of November, there were more than 10,000 homes for sale in the Valley — and 2,400 new listings added — but sales were averaging just 1,120 per month. While prices are higher than a year earlier, they have been falling month-over-month since early summer.

“What’s happening is that there is a large amount of inventory available in the Fraser Valley, in particular with condos and townhomes, and that’s what’s holding prices in check,” said board president Sukh Sidhu. It now takes two-and-a-half months, on average, to sell a Fraser Valley condominium apartment, he noted.

Surrey realtor Brent Roberts said the primary glut of unsold condos is in north Surrey’s Central City and Whalley areas, where a rush of new construction greeted plans for a new city hall, library and RCMP headquarters.

“People thought they could buy pre-sales and then flip them for a profit,” Roberts said. “I know one investor sitting with 14 of them.” The result has been price discounts, with some new one-bedroom condos selling for around $140,000, he added.

CMHC does not see a quick recovery in the Fraser Valley, forecasting a 3 per cent drop in MLS sales in 2012, and no increase in prices. In Abbotsford, sales are forecast to fall 11 per cent this year and a further 4 per cent next year.

Victoria

B.C.’s capital city will see a modest recovery in 2012 after watching housing sales decline for three straight years. Total MLS sales are forecast to increase 6.8 per cent next year, while average resale home prices will remain nearly unchanged at $505,000, from a year earlier.

Housing starts in Victoria will increase 8.8 per cent in 2012, but remain below the average over the past four years.

Victoria will continue to have one of the lowest vacancy rates in Canada: 1.4 per cent in 2012 according to CMHC. It also has one of the lowest unemployment rates, at 5.4 per cent projected for 2012.

Kelowna

Both CMHC and Central 1 Credit Union are forecasting a weak recovery in the Central Okanagan, where sales have been falling steadily for three years, with resales down 5.4 per cent in 2011. Residential sales in 2012 are expected to come back to around 3,100 units, which would still be below the level of 2009. Prices will flatline at 2011 levels.

Kelowna will be the bright spot, according to CMHC, which sees an 11 per cent leap in resales in 2012 with only a modest increase in the average price of a resale home, which fell 2.6 per cent this year to $512,000.

The Kelowna vacancy rate is easing and is forecast to be 4.5 per cent in 2012, down from 5.5 per cent this year. The upturn hinges on an improvement in the local employment rate, which CMHC sees falling to 7.5 per cent next year, the lowest level since 2009.

The resort market is expected to remain in the doldrums in 2012 due to lack of out-of-province buyers and the HST, which is fully applied to secondary properties, according to Central 1.

As this year ends, blowout sales with price reductions of 50 per cent or more were being offered at Tuscan Villas — condos from $154,900 — one of several Interior resort developments that are in receivership. Some realtors doubt that Kelowna-area housing starts will see the 18 per cent increase forecast by CMHC for next year. “There is a lot of new inventory right across the Okanagan,” said one Vernon real estate agent.

“A breather year”

CMHC regional economist Carol Frketich notes that B.C. will post 2.7 per cent economic growth next year, one of the best in Canada, and mortgage rates will remain near historic lows. This, she said, is evidence that the residential market will be “balanced” in 2012, with a chance for an upturn in northern markets such as Prince George.

Real estate consultant Ozzie Jurock noted outlying markets have been in a down cycle for 15 months, which has now spread to a “sideways-to-down cycle in Vancouver.”

“We look for Vancouver condo sales and prices to slow further, single family prices to stay even and the Interior and Vancouver Island remaining very sluggish,” Jurock said. “2012 is a breather year.”

© 2011 REW. All rights reserved.

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In November the Fraser Valley real estate market held steady, with increases in both sales and listings over last year at this time.

It was expected that sales and listings would start to drop off in November — and they did — but the year-over-year strength proves that the Fraser Valley’s combination of affordable housing and a growing job base is attracting buyers.

 

 

Benchmark prices for detached houses and townhouses were up slightly, both over November 2010 and over last month. These are the benchmark prices compared to last November:

Detached   $532,086,  +5.4%

Attached     $327,764,  +2.5%

Apartment   $238,461,  –1/6%

Here is the Fraser Valley Real Estate Board’s breakdown of November’s statistics:

 

November property sales in the Fraser Valley are up slightly compared to last year and didn’t experience the usual month-over-month seasonal decline. 

 

The Fraser Valley Real Estate Board processed 1,120 sales in November on its Multiple Listing Service® (MLS®), an increase of 3 per cent compared to the 1,084 sales during the same month last year and a decrease of 2 per cent compared to 1,139 sales in October.  In the last decade, sales decreased on average 9 per cent from October to November.

 

Board president, Sukh Sidhu says, “Given the time of year, Fraser Valley is experiencing steady buying activity with notable month-over-month increases in the sale of homes with an attractive price point.

 

“For example, townhome sales in central Surrey increased by 20 per cent in one month and in Langley by 43 per cent.” Sidhu adds, “Fraser Valley offers buyers the key value of affordability. Currently, over half of our townhomes and condos are listed for $289,000 or less.” 

 

While sales remained stable, MLS® inventory decreased from October to November, typical for the time of year. The board posted 1,926 new properties in November, an increase of 9 per cent compared to November of last year and a decrease of 23 per cent compared to October. November finished with 9,471 active listings in the Fraser Valley, 5 per cent more than the same month last year and 5 per cent less than October’s 10,005 listings.   

 

Sidhu says, “Even with fewer listings coming on stream, buyers can still take advantage of almost nine months of inventory, which is putting downward pressure on prices in certain areas and property types.”  Prices for a typical Fraser Valley apartment are down year-over-year and month-over-month, while both single family detached and townhomes are still showing positive price gains compared to November last year and remain stable compared to October. 

 

In November, the benchmark price of a detached home in the Fraser Valley was $532,086, an increase of 5.4 per cent compared to $504,848 in November 2010 and an increase of 0.3 per cent compared to October.

 

For townhouses, the benchmark price in November was $327,764, an increase of 2.5 per cent compared to the same month last year when it was $319,623 and up 0.7 per cent compared to October. The benchmark price of apartments in November was $238,461, a decrease of 1.6 per cent compared to November 2010 and a decrease of 2.2 per cent compared to October.

© 2011 REW. All rights reserved.

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Demand and supply are expected to remain balanced until later in 2012

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Watch Property Values in Tri-Cities Increase

Glen Korstrom
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Developers are starting to market more than 1,500 residential units along the Evergreen Line route in the lead-up to construction starting on the $1.4 billion SkyTrain extension late next summer.
 

However, some landowners are content to ride rising real estate values until the line is complete before redeveloping or selling their sites.
 

Morguard REIT, for example, owns the eight-acre Burquitlam Plaza site near the future Burquitlam Station and has rebuffed offers to sell the site to ambitious developers such as Bosa Properties Inc.
 

“We know it’s a fantastic site,” Morguard asset manager Bob Nicholson said of Burquitlam Plaza. “I can’t talk our guys back east into moving on it right now. They’re in a wait-and-see mode.”
 

Bosa senior vice-president Daryl Simpson told BIV, that his company wants to buy Burquitlam Plaza partly because Bosa plans to build 350 condominiums in two towers just north of the plaza on a Bosa-owned site that’s currently home to a Safeway and a gas station.
 

The project, which will be marketed as early as next summer, will include rebuilding the Safeway to face Clark Road.
 

But it’s not Bosa’s biggest project along the line.
 

The Vancouver-based developer plans to build 400 units in two buildings several blocks south of Burquitlam Plaza, on Foster Avenue near North Road.
 

Simpson said presales for that project’s first building will launch next summer or fall.
 

He predicts the project will attract the same market excitement as did Mosaic’s October 27 launch of the first of its three buildings on Foster Avenue.
 

Mostly realtor-investors snapped up that building’s 55 units in a few hours, according to TheKey.com president and marketer Cam Good, who is planning pre-sales for the next two Mosaic buildings.
 

But in the meantime, Simpson is getting ready to market the 200-home Evergreen tower in February.
 

That development is in Westwood Village, behind Coquitlam Centre mall and near the future Douglas College Station Evergreen Line terminus.
 

“We put that project on hold for three years and are bringing it back because we know the Evergreen Line is officially coming.”
 

Simpson added that Bosa has built and sold hundreds of other homes in three adjacent towers in its Westwood Village project in the past seven years.
 

The other major developer along the line, Polygon Homes, is marketing the 186-unit Caledon building in the 1,400-home Windsor Gate master-planned community near the Coquitlam town centre neighbourhood.
 

“We’ve sold about 75 homes in the last 30 days at Caledon, which is the sixth building at Windsor Gate,” Polygon CEO Neil Chrystal told BIV while he was stuck in traffic on the way out to Coquitlam.
 

He believes that as the Evergreen Line eases access to Coquitlam, the municipality’s property values will rise.
 

“Property values in Vancouver, Richmond and Burnaby have recovered from the 2008 downturn. The outer suburbs have not kept pace,” Chrystal said.
 

“There are exceptional deals, not only Coquitlam, but also in Surrey and Langley. I think the smart people who are buying in the Coquitlam town centre will be rewarded in due course.”
 

Not all projects are focused on pre-sales, however.
 

Magnum Projects Ltd. president George Wong said Springbank Development Corp. aims to sell as few presales as possible at its upscale 79-unit Bloom development next to Burquitlam Park and behind Burquitlam Plaza. Wong recently helped Springbank principal John Ritchie sell 25 units as presales to satisfy bankers.
 

“He thinks his product sells better when it’s finished, when people can see it and feel the space,” Wong said. “It’s really aimed at an owner-occupier as opposed to the investor community.”
 

About 70% of Bloom’s units are townhomes that range in size from 1,200 to 1,400 square feet.
 

Wong said investors prefer smaller units because they’re more affordable and can be rented easier.
 

“We’re quiet now and low key about things. John Ritchie likes it that way. When the buildings are closer to completion, we will have a more aggressive outreach campaign.”

 

© 2011 REW