Sunday, January 9, 2011

Chilliwack Real Estate Market Review and Analysis December 2010


Call to Action - Write Your MP - Buyers Start Looking Now

It is ironic, to some degree, for me to look at the struggle the year 2010 was then learn that Finance Minister, Jim Flaherty is considering further Federal regulations that will once again cool off the very fragile real estate market we have been working through since the last bout of Federal tinkering.  My sources tell me that the Federal government is planning to raise down payment requirements to 10% and to shorten amortization periods from 35 years to 25 years. These changes will have the biggest impact on new purchasers and will force young families right out of the market entirely.

We can expect many real estate markets including the one here in Chilliwack to fall into a new downward spiral crushing home ownership dreams, impacting the economy (once again) and homeowners alike. More simply, the results of these proposed changes will be fewer buyers, lower prices and longer periods to sell your property, if at all. If you are as concerned, as I am, about these threats then contact your local Members of Parliament.  No postage is required if sending a letter to your MPs Ottawa office.  I have sent mine in, please, do your part.  Chilliwack is represented by a pretty reasonable guy, Chuck Stahl, I am hoping he will listen.

MP Chuck Strahl
Chilliwack-Fraser Canyon
House of Commons
Ottawa, Ontario
K1A 0A6


Real Estate Review and Analysis - January 9, 2011

SINGLE FAMILY HOUSES

I was quite encouraged by the sales numbers that I was seeing midway through the month of December 2010 as they were significantly better than that same period in other years.  I found out that one reason for the uptick was an impending increase in interest rates was encouraging buyers to commit so that they could take advantage of lower mortgage rates.  Whether this momentum will continue now is questionable.

This surge in activity largely by first time buyers more sensitive to interest rate changes has an impact also on what is being purchased and as a result the average sale price was substantially lower this month $288,000 compared to $341,000 in November.  We can expect the average sale price to seemingly increase in upcoming months but this will be due the blend of buyers returning to normal and higher priced properties one again being acquired.

There were 79 sales of Chilliwack* single family houses in the month of December 2010 as compared to a 10 year December average of  85 sales for December (2000-2009).  Another way of looking at this would be to say that the December 2010 market was operating at about 93% of the 10 year norm.  Encouraging to some small degree as the November real estate market was operating at about 3/4 speed.  Still a long ways down from anything in the 2002-2006 periods but it is all about "green shoots" isn't it.

If we look back at the beginning of 2010, there was a very game Chilliwack real estate market operating at about 85-98% efficiency as well and then a huge drop off starting in July when all of a sudden the market plummets, to a 60% efficiency rate. (This type of drop could happen again if the Federal Minister implements the suggested changes mentioned at the top of this post.)  A number of concerns were raised by this column in March 2010, about the then still to be implemented, federal initiatives designed to cool off the market: tougher new lending requirements, rising interest rates and the HST.  This blog thought that the Chilliwack real estate market was still too fragile and felt that these policies designed to cool off real estate markets in the major metropolitan areas would have an adverse local effect; sadly, this appears to have been the case. Unfortunately, we could be looking at round two, courtesy of the Federal Government; - did I mention that you should write your MP?

Chilliwack* Single Family Detached Housing Sales Report - December 2011
MONTH Sales Average Sale Price Days on Market Active Listings
December 2010  79 $288,000 67 707
November 2010  83 $341,000 83 914
December 2009  87 $351,000 69 n/a

Median Price of Active Chilliwack* Single Family Detached Real Estate Listings: January 9, 2011 - $375,000

STRATA HOMES

MONTH Sales Average Sale Price Days on Market Active Listings
Dec   2010  41 $208,000 88 416
Nov  2010  39 $201,000 77 524
Dec   2009  49 $228,000 70 n/a

Median Price of Active Chilliwack* Strata Real Estate Listings: January 9, 2011 - $214,900

The Chilliwack real estate market for Strata Homes saw 41 sales in December 2010 compared to a 10 year (2000 - 2009) December average of 42. Not bad as mentioned the increase in mortgage interest charges made the entry level properties much more attractive in December. Sale numbers were also slightly above November sale numbers of 39 as was the average sale price.



Notes:
Review and analysis of the Chilliwack* real estate market from the armchair of Stephen Mullock a 30 year Chilliwack real estate agent and a professional member of the Real Estate Institute of British Columbia.

This review and analysis looks at two areas of the Chilliwack* residential real estate market, that of single family detached houses, and, strata homes (apartments, townhouses, duplexes) for the month of December 2010.  This post will be of interest to buyers and sellers in the Chilliwack real estate market, real estate professionals and the curious.

Stephen Mullock RI is an award winning full-time real estate agent with 30 years of experience and hundreds of sales. Thinking of buying or selling real estate in the Fraser Cheam communities of Chilliwack, Agassiz or Harrison Hot Springs? Contact Steve (click here) for experience, local knowledge and friendly service you’ll be happy you did.

5 comments:

  1. First off, thank you for posting the December stats, much appreciated. Secondly, I can't help but find your opinions on further tightening of mortgage rules a little short sighted. We have an extreme debt issue in this country, and I would say especially in the lower mainland. This is due to a few factors, with the greatest one being over-priced real estate. You talk about the burden that further regulations will have on young families, but let's face it, some people just shouldn't own real estate, for the simple fact they can't AFFORD it. Tighter regulations will help protect these people from themselves. It's not a bad thing. Young families may have to try something that seems foreign to them - save for a downpayment! Remember, real estate did just fine when regulations were 25 year amortizations and 10% down payments, so what's the worry? We would have just gone full circle from 25 to 40 to 35 and back to 25 year amortizations. Prices for real estate will eventually adjust accordingly with the new regulations. Again, not a bad thing for young families. By the way I sent my letter to Chuck Strahl, but in my case, in support of further mortgage tightening regulations.

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  2. Do I think that people should save more - sure. Do I think that people should strive to pay off their mortgages as soon as possible - yes again. Do I think that real estate is the vehicle that should be chosen to teach people responsible financial practice - not really - the impacts are too detrimental.

    I also think that buyers should, so long as they have good employment, be given plenty of opportunity to own a home. The tightening of these regulations will only serve to knock many of them out of the housing market and they will remain renters.

    I do believe that home ownership is an essential ingredient to a happy community. People are more vested into homes, towns and their country when they own.

    There are other consequences as well involving ensuring economic vitality, providing housing options and protecting property owners.

    Ensuring Economic Vitality;a significant percentage of businesses and employment is dependent upon a healthy real estate market. When a new buyer purchases it start off a chain reaction of economic stimulus, a multiplier effect in the community. The trades' people get paid and new developments get planned. Houses require appliances, furniture, blinds, lawns, fences and on and on. The local economy benefits, businesses prosper and people stay employed. To a great degree the key words in the sentence above is "local" and "employed". I don't think that an extra 5% is worth taking jobs away.

    Providing Housing Options; in a good real estate market people benefit from housing options in all price ranges and would happen again if builders regained confidence in the market. This would be a good thing. The new changes will derail this once again.

    Protecting Home Owners; fewer buyers because of new regulations will likely mean lower prices but it also means a more stagnate real estate market. This means that mobility within the country will be a challenge as a longer marketing period will be needed to achieve a sale; if that property sells at all. I do not think that is good for the portability of talent aspects of our economy. Looking at 2010 there have been many disappointed people with unsold properties that don't know that it was the Federal tinkering in early 2010 has kept them from getting on with a new life. The next round of Federal tinkering will only make matters worse.

    Then there are the people that already own property and will see erosion in value if these new regulations are implemented? Some may in fact wind up owing more than the property is worth? Should policy put these people "under water" with their mortgages?

    These changes are going to have a big impact on local economies, real estate values, liquidity and will negatively affect almost all Canadians. Write Chuck but don't support the proposed changes.

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  3. I appreciate your arguments for not tightening mortgage rules futher. However I think your arguments overlook the elephant in the room - consumer debt. Canadian debt-to-income ratio has hit a record 148.1%. Surpassing the US debt ratio of 147.2%. We already know how the US debt issue has affected real estate there.

    When you say you don't think that real estate is the vehicle that should be chosen to teach people responsible financial practice, I couldn't disagree more. A house is likely the biggest purchase most people will make in their lives. It will also likely be their biggest financial burden as well. I would like to think that a responsible person would look at all aspects involved when making a purchase of this nature. Things such as - where are we in the real estate cycle? What are the opportunity costs involved? What kind or realistic return can I expect? Can I afford to continue to live here if the unexpected happens? A real estate purchase should absolutely not be made on an emotional basis, as you seem to suggest.

    You go on to say that buyers should, so long as they have good employment, be given plenty of opportunity to own a home. I agree with you on this. Buyers who have good, steady employment, good credit and a reasonable downpayment should have no problem buying a home, even after further tightening of mortgage rules come into effect.

    Futher mortgage rules will separate these qualifed buyers from fringe or marginal buyers. I can't help but think that this will only be good for real estate in the long run. Buyers that can hold onto their properties thru good times and bad provide a solid base on which to build and grow. A housing market built on marginal buyers is a market in jeopardy.

    You go on to mention - protecting home owners, lower real estate prices, and a stagnate housing market. There should be no need to protect home owners from lower real estate prices if they purchased their home in a financially prudent manner. Quality buyers will be able to hold their properties. It is the marginal buyers, people who probably should have never bought, that will be in trouble. A flushing out of "weak hands" is something that occurs in every financial marketplace, be it stocks, bonds, commodities, or real estate. Call it a necessary evil.

    I see you like to wax poetic on the benefits of home ownership. However, the simple fact is not everyone should own property. There is another name for marginal buyers - those who have poor credit, inconsistent employment, and no downpayment. They're called renters.

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  4. There is perhaps an elephant in the room - consumer debt - and, I have to admit consumer debt is something that I don't know a lot about, but, here it goes...

    Buying a property is quite different from buying a 3rd flat screen television. It is a much larger purchase and if a mortgage is involved requires the scrutiny of the bank or a mortgage broker and maybe even a real estate appraisal. There are Debt Service Ratios that have to be adhered to and steady and the ongoing employment of the borrower must be proven. If CMHC is involved a second look may also happen. All in all, I believe that the banking/mortgage industry does a pretty good job ensuring that marginal purchasers do not make buys they can not afford.

    If consumer debt needs to tighten up I suggest looking at the freewheeling credit card area.

    Further, real estate is an asset and one that has served Canadian families well through time and I don't think it should be seen with the same lens as purchases centred on short term consumption. (Have a look at the asset value gains of Chilliwack real estate through time at this post http://www.frasercheam.com/2010/08/real-estate-market-jitters-and-long.html.) Real estate is a quality purchase that should be encouraged by the government.

    Consumer debt I would guess, but have no numbers, increases when Canadian families either become unemployed or have to work part time because of a poor economy. The Federal proposed changes to the mortgage structure, as they did in 2010, will force people out of employment or into short term jobs. Last year their changes all but stopped housing construction in the Chilliwack area, gradually, the market improved to about a 75% efficiency (based on a 10 year average) in November and December was even better but still lower than where it should be. The proposed Federal changes of reducing the maximum length of an amortization period from 35 years to 25 years could perhaps be lived with but the requirement of needing 10% down payment would reverse all the good work the real estate industry did in 2010 and would create a downward spiral as mentioned in the post above. It will weaken the local economy and either under-employ or put people out of work. Once there they will start living off their credit lines.

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  5. There is a reason the Federal government is looking at mortgage debt rather than credit cards. Canada started the decade with 421 billion in mortgage debt and ended it with 975 billion. That's a 132% growth in mortgage debt over a ten year period. Yes, some of it is due to financial expansion, population growth, etc., but a large part has to do with the explosive bull market in real estate we had during this time. Take a look at your own chart of Chilliwack housing prices. In 2000 we were at $150,000 average sfd. By 2010 to $350,000, a 133% increase. Notice the similarities between percent mortgage debt growth and real estate price increase? Salaries have not kept pace. $52,490 was the average household income in BC in 2001. This increased to $67,890 by 2008. A mere 30% increase. Obviously with wages not keeping pace with home prices, the money needed to come from somewhere. The consumer debt issue we have is directly related to real estate.

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