February Housing Market Report
The February Metro Vancouver housing market posted and increase in supply from home sellers and below average demand from home buyers.
The Real Estate Board of Greater Vancouver (REBGV) reported for the month that the regional residential home sales totalled 1,484 was 32.8% lower than the 2,207 sales recorded in February 2018, and 34.5% higher than the 1,103 homes sold a month ago.
Total sales for February 2019 were 42.5% below the average 10-year February sales.
Total MLS® listings of 3,892 for detached, attached and apartment properties for the month was 7.8% lower than February 2018, and 19.7% lower than the 4,848 homes listed in January 2019.
Total number of homes for sale on the MLS® system in Metro Vancouver at 11,590 units was 48.2% higher than a year ago, and 7.2% higher than January 2019's 10,808 active listings. Read the full report.
Danger Of New Condo Price CollapseThe greatest risk to the housing market is expected to come from presale concrete-highrise new condos that were launched after 2017, particularly in cities like Burnaby, Richmond and Coquitlam. The average price per square feet for these presale condos rise from $650 to the high $800s.
Early presale condo buyers from 2011 to mid 2015 were the winners paying around $500 per square feet for their condos. These buyers made huge gains in their condo values when resale new condos just completed in 2018 and early 2019 were selling at $900 to $1,000 per square feet.
Huge Challenges For Highrise Concrete Condos
The current batch of presale condos completing and ready for possession was preconstruction condos sold at $530 to $560 per square feet from mid 2015 to mid 2016. These buyers have sufficient price cushion to sell their units through assignments or after taking possession (paying gst on their new condos) and selling their condos at a profit.
The current soft housing market may go through a multi-year price decline following larger than expected collapse in the total units of homes that were sold the past 12 months. Many of the early condo buyers and investors who bought from 2011 to late 2015, may choose to sell to cash out their gains. Market pressure from too many homes for sale and poor demand as a result of stringent financing requirements, speculation tax, etc can have an adverse effect on condo prices.
A protraded price decline over 3 years or longer could possibly see condo sellers cashing out driving down condo prices in a declining housing market.
Cash Flow Projection
Assuming a condo buyer of a 2-bedroom Richmond condo with around 880 sq ft paying $800 per square feet, would have cost the buyer $704,000. Af the buyer is providing 30% down payment ($211,200) and getting 70% financing, the mortgage payment for the $492,800 loan at 3.6% interest per annum would be around $2,492.00 a month. Assuming the strata fee is $450 a month and property tax is $2,250 a year, the cost to carry the loan is around $3,130 a month. The vacancy provision, cleanup/repairs and property management may add another $370 a month to the carrying cost, making this investment obligation closer to $3,500 a month.
At current market rent for a 2 bedroom around $2,500 a month, the investment produces a negative cash flow of $1,000 a month to the owner. The opportunity cost for the $211,200 down payment at 3.5% per annum is conservatively estimated to be around $616 a month. The condo investment would run a deficit just over $1,600 a month or $19,200 a year. The mortgage loan pay down is estimated to be around $14,400.
Capital Gain Prospect
Buyers stay out of the market when it is still in decline. Smart investors look for signs of the market turning around, and they are on the look out for good buying opportunities. For more up-to-date information on the market and good buying opportunities for unusual deals, kindly contact us at 604-721-4817 for a discussion.