State of The Market Address:
“So… How is the market?” - A question I am frequently asked when conversing with clients. The short answer is, “Vibrant!”
The Fraser Valley Real Estate Board’s Multiple Listing Service (MLS) processed 1,982 sales in June. This number reflects a 40% increase in sales from the same month last year. This is also a dramatic increase from the 980 sales processed in September, 768 sales in October and 507 in November of 2008. In fact, June’s numbers were comparable to the level of sales achieved during the same month in 2006 and 2007 during the strongest real estate cycle in the Lower Mainland’s history.
Prices have dropped approximately 10% across the board since the market peaked in May of 2009, and interest rates have dropped to levels that we have never seen before. This has lead to a resurgence of first time Buyers entering the marketplace. Those that thought about buying 3, 4, or 5 years ago and didn’t or couldn’t, found themselves priced out of the market by last spring. The current prices and interest rates allow these buyers to purchase a property today with 20% – 25% lower monthly payment than they would have faced a year ago.
In comparison, a $300,000 townhome purchased a year ago with 5% down would cost a buyer $1,560 per month. The same townhome today has dropped to $270,000, and with the lower interest rates would cost $1,110.
The current market conditions also provide an ideal landscape for those that did buy two or more years ago and have established some home equity providing move up opportunity. For example, a purchaser who bought a townhome for $200,000 a few years back witnessed a rise in the market value of his unit up to $300,000 at the peak. For this buyer to move up to the home he wanted, he would have had to pay $550,000 ($250,000 more than his current dwelling). This buyer’s townhome has since corrected back to $270,000 (a $30,000 drop in value). The home the buyer would have moved up to has dropped to $500,000 (a $50,000 drop in value). The home the buyer wants to move into is now only $230,000 more than his current dwelling rather than $250,000.
Another factor that is aggressively knocking fence sitters into action is the recent increase of the 5 year interest rate. On June 1st, 5 year interest rates rose from 3.65% to 4.29%. Most lenders & brokers will allow buyers to lock in an interest rate for 90 days. This means that anyone who was passively watching the market and considering a purchase now has until August 30th to take advantage of the lower interest rate. The difference between 3.65% and 4.29% is roughly $120.00 per month on a $300,000 mortgage. This phenomenon appears to have postponed our seasonal summer slowdown indefinitely.
So what does all of this recent activity mean for house values? While the level of sales activity relative to our inventory is painting an attractive picture related to values, we’re not anticipating any amount of real inflation for the remainder of this year at least. What we are expecting is moderate levels of inventory balanced with a healthy level of sales, creating an atmosphere of pricing stability.
- Tyler Schacter