News

Friday, June 3, 2011

A Thought on Vancouver House Prices and Mortgages

by Coldwell Banker Westburn Realty on Fri, Jun, 3, 2011 04:00 PM

We have heard reports for many years about the affordability, or rather the lack Vancouver Home Mortgage thereof, of real estate in Greater Vancouver. The latest report from RBC suggests that the typical home is now about 10 times the median family income. This means that if your family income is $60,000, then the typical home would be about $600,000 which is about the GVRD benchmark. Let’s have some fun when factoring mortgage rates and going back in history.

In 1981, the typical home was about $150,000 and the mortgage rate was around 20%. Assuming the $60,000 income the house would be 2.5 times that amount. Yet with 20% down on a 5 year term, you would only qualify for a $115,000 home.

In 1991, the home became $275,000 with mortgages at 11%. Using the same income, the home would be 4.6 times that amount; however that income now qualified for a $189,000 property.

In 2001, the same house became $360,000 with rates at 7%. The income was now 6 times the amount while the same income qualified for a $260,000 property.

In 2011, the rates dropped to 4%. The same $60,000 income now qualified for a $350,000 property while the typical home is about $700,000 which is about 11.5 times that.

You get the idea. Over the past 40 years, real estate has proven to be a sound long term investment. This is another reason to buy when you have the opportunity to do so instead of waiting and renting. Typical incomes will never catch up to hard assets. I have heard so many people waiting for prices to drop. Remember that you are buying a place to live in, not a short term investment. Cycles do come and go, but prices have always surpassed the previous high. You would think that increased mortgage rates should have the opposite effect on house prices. Yet Vancouver has become a destination city where others want to live from around the world. What do you think?

- Arthur Ng

Comments

by david on Thu, Jun, 16, 2011 11:35 AM

The income you are using is not correct in determining the multiplier. The average wage needs to be adjusted by the GDP deflator. Hence, your calculation is skewed and incorrect.

by Melly on Mon, Jul, 18, 2011 04:16 PM

Youre the one with the brains here. Im wactnihg for your posts.

by Krystalyn on Tue, Jul, 19, 2011 05:34 AM

That's a mold-breaker. Great thninkig!