Price corrections likely, but limited in location and duration
Howard Steiss
Sun
This accumulation of industry honours very much motivated my request to Adera vice-president Howard Steiss (above, outside the Ledgestone II new-home project in Burnaby) to share with Vancouver Sun readers his thoughts on the local real-estate market, new and resale, this year and next. Photograph by : Bill Keay, Vancouver Sun
Black is the standard finish on the General Electric appliance package in a red kitchen. Stainless steel is an upgrade. The range-hood manufacturer is Sakura. Laminate is the standard countertop finish; granite the upgrade. The laminate is a stainless steel substitute. Photograph by : Stuart Davis, Vancouver Sun
One non-market measure of a company’s ability and credibility is its performance in industry competitions.
Adera Development Corp. is, year after year, a strong performer, and the company to beat, in development and construction industry competitions, provincially, nationally and internationally.
In just this decade, for example, it has twice been named best large-volume builder in an annual competition sponsored by the B.C. branch of the Canadian Home Builders’ Association, a competition called the Georgies. It is a finalist in the same large-volume-builder category this year; if it should win, victory would be a year-over-year repeat.
We in metro Vancouver could be nearing the end of a market cycle, now in its eighth year, that has created the highest housing prices in our history. If there is a correction, its duration probably will be short and its breadth probably limited to only some Lower Mainland locations and housing types.
The long-term outlook is positive.
Increasingly higher prices across all market segments characterized the past year. The average apartment price, for example, now is almost 50-per-cent higher than the 2003 average. With average townhouse and apartment prices in the $300,000s and detached in the $600,000s, Vancouverites, urban and suburban, are having to pay up to live in and around one of the world’s most beautiful cities.
This price appreciation is not sustainable for a couple of reasons.
The first is affordability. Although Vancouver is still a great deal on the international market, local buyers are using record levels of take-home pay to finance new homes. The rate of price appreciation has overtaken the rate of growth in family incomes, which is not sustainable. At current prices, new homes are becoming out of the reach the average-income buyers. Consequently, fewer buyers can afford to bid prices up any further.
The second reason prices will not continue to escalate is the potential for higher mortgage rates in the coming year, which will reduce purchasing power.
The record high prices have people asking if there is a real estate bubble (that will burst).
I usually start to answer by saying that Greater Vancouver is not a single market, but rather a collection of micro-markets defined by housing type and location.
Bubble or not, unique waterfront and view property will always be in hot demand and the price of land around Vancouver will generally rise in value over the long term because of geographic constraints to residential construction. New-home prices charged by builders will continue to grow, reflecting the higher cost of land, labour, taxes and materials.
However, some areas have a potential oversupply of apartments that exceed projections for population growth. More recently in some areas, the supply has been created in large part by investors looking to cash in on the inflation in prices between offer and completion. Because many investors have purchased several residences in various locations, there is the potential that many new but never occupied units will be available for re-sale or rent in some buildings. Competition among re-sales could be buyer friendly.
Another factor influencing buying decisions is the length of waiting time for delivery of a new home. The demand for trades in both residential and non-residential construction has stretched the building period for many projects. Homebuyers looking for shelter could become less willing to wait the long time (up to three years), and may shy away from pre- sales in favour of a newly finished home so they can get on with their lives and lock in a mortgage at a low rate.
There will be other changes in the 2006 market. Greater Vancouver will see increased redevelopment of existing buildings, as bare land becomes scarce. This is already evident in the south Granville area and other areas close to downtown, where the redevelopment of office buildings and shopping centres for mixed use — both commercial and residential — is becoming common.
Because of high housing costs in Vancouver, suburbs will see increased demand for affordable housing. A move to affordability means a move to the suburbs. Moreover, suburban municipalities such as Surrey, Langley and the Tri-cities are increasing densities for new-home developments to achieve more affordable housing. With new transportation projects in the works connecting the region together, I see a good reason for continued real estate optimism in the suburbs.
Opportunities lie in places where an average family can still afford to buy a new home. That will be east of Vancouver in areas like Langley and Abbotsford. Prices in the suburbs may even increase moderately next year because of the flight to affordability, as the average prices for apartments, townhouses and detached homes in the Fraser Valley are $100,000 to $250,000 less than Greater Vancouver prices. Overall, townhouse or apartment projects priced under $300,000 should be fast sellers.
A good buy in 2006 would be a townhouse because many people like to have outdoor patio or garden space without the maintenance of the yard of a detached home. Also, more and more empty nesters and active couples are appreciating the social life and security that is often found in new townhouse communities.
© The Vancouver Sun 2005