BC Sunshine Coast real estate by Menno at Royal lePage Real estate on the BC Sunshine Coast

Sunshine Coast homes have remained stable in value while homes in the Vancouver area have gone down in value a bit over the last year. Is there still enough price difference between Vancouver and the Sunshine Coast to notice the difference?

Vancouver house prices have gone down a bit, some say that there are bargains out there. Now fast-forward to the Sunshine Coast and see what REAL bargains look like.

The astute observer of market statistics may have noticed that property values in the Lower Mainland have been coming down a bit over the past few months. At the same time, property values on the Sunshine Coast have remained the same, reducing the value gap between these two markets.

Does this mean that it’s now less of a financial draw to move to the Sunshine Coast? Is the price difference still significant enough to make the ferry crossing? Can you still purchase “bargain” properties on the Sunshine Coast?

The answers are simple: there is still a phenomenal value difference between the Lower Mainland real estate market and the Sunshine Coast real estate market. You can purchase a nice large home here, on its own land and possibly even with an ocean view for less than $400,000. There’s no possible way that you can match this in Vancouver – the price difference remains phenomenal although, perhaps, a little bit less enormous. At the same time, moving to the Sunshine Coast could be a matter of economics – but we’d much rather see you arrive here because of a lifestyle choice: because of the scenery, the general pace of life, the friendly people, the good infrastructure, the cleanliness or any one of many other positive reasons.

Take an amount of money - any amount works for this exercise. See what you can buy in Vancouver and what you can get on the Sunshine Coast. It's a cool comparison.

THE DIFFERENCE IS STILL HUGE

To become a home owner (from being a renter, for instance) requires a 5% minimum down payment. That’s an awful lot of cash; however less on the Sunshine Coast than in Vancouver; how can that be? The math is simple. If the house costs less, your five percent down-payment threshold will be easier to cross. Thus, it’ll be easier to qualify for a mortgage loan.

To many first-time home owners, it’s quite a struggle to get that 5 per cent minimum down payment ready. Five percent … well that’s just an awful lot of money. Obviously, if the home costs less, the mathematical 5% is also easier to achieve. Since homes cost MUCH less on the Sunshine Coast, you’re well ahead of the pack of first-time home owners in Vancouver.

Let’s imagine you succeed and get the 5% together. Say, you qualify for a nice bargain 5-year mortgage rate at 3.20% or even a 10-year mortgage at 3.99 per cent. For those that can manage this, life could hardly be better.

If houses were to go down in value by a certain percentage, you'll obviously "lose" less when you bought the property for less. It's all relative!

LET’S THINK ABOUT MARKET RISK

Usually, a property appreciates in value, once purchased. In a few years, you’ll have paid down your mortgage loan a bit, while the actual property value has somewhat gone up. Like by miracle, your 5% equity has increased to 10% or maybe even 15%. However, it’s also possible that the unexpected happens and home prices dive 15 per cent. Even though you may have paid down the mortgage a bit, you may still end up in a situation that the house is worth less than the amount borrowed against it. Some refer to this situation as having an upside-down mortgage.

If forced to sell a home after the market has gone down dramatically, you wouldn’t be able to break the mortgage unless you made up this shortfall from your own resources. Your only other choice would be to ride out the real estate cycle – and hope it’s not a long ride.

Real estate always goes up in value - when viewed in the long term. It's still possible to be caught in a downswing when you purchase relatively high and sell low (or lower).

SELL-OFFS DO HAPPEN

Home prices are a two-way street. We’ve almost forgot what selloffs look like but, believe it, they happen. All you need to do is look just South of the border. They’ve been dealing with forced sales, personal bankruptciesand upside-down mortgages for a few years now. What would we do if that ever happened here? How prepared are we; how prepared are you?

When prices finish dropping, they will rebound – but they can also (first) stay flat for months if not years. If the latter happens and you’ve saddled yourself with a big fat mortgage, you could wind up a prisoner in the home you used to love. This home may now be too far from your new job, too small for your growing family or too expensive with your spouse out of work. This is the very real risk facing people who leap into a red-hot housing market with a dream, a relatively small 5 per cent down payment and very little savings. This could mean that fringe buyers who put down the minimum – and stretch their amortization to the maximum – are taking a casino-style gamble.

Here’s the simple point: If you have to stretch yourself financially to buy a new home, you’re probably not ready to trade in your landlord for a lender. If you still press forward with just 5 per cent down, be prepared to stay in your home a while – potentially a long while. After all, a sell-off could happen.

The point remains that if you can purchase a property with a similar utility for significantly less money, that't you should seriously consider doing that.

THE FIVE PERCENT SAVINGS PLAN

Still, there is a worthwhile market for those that only want to (or can) put down 5% towards their mortgage. Typically, 5 per cent-down mortgages are geared to someone who’s more than a few years into his/her career, with a path for advancement and the related income increases. They are also most suited to people with a savings plan; and someone who’s demonstrated that they’re handling credit responsibly and are well below normal debt ratio limits.

If a borrower’s house was worth less than their mortgage debt, things like job loss, pay cuts and overspending would only exacerbate the risks and further limit their options. Obviously, it’s those that are putting five per cent down on a $600,000 house with a high debt ratio that are in the worry-territory. A five-per-cent-down mortgage really isn’t suited to all people. If you absolutely have to put down as little as 5 per cent, aim to make additional payments every year to pay down the principal of the mortgage faster.

Also, everybody should have some kind of emergency fund including at least three months of living expenses. Specialists say that this safety money should be put at an institution that has not lent you any money because they can sometimes use money in savings to offset delinquencies. And you GOT to eat.

There are other ways of looking at it. For the same amount, you could purchase more house on more land; or live in a better neighbourhood. The options are endless.

STILL MUCH BETTER OFF ON THE SUNSHINE COAST

It boils down to the fact that if you can’t make a healthy down payment that you should be sure you’re financially stable and love your house. There’s a slight chance you could be in it a lot longer than you may expect. This could occur if market values drop and you can’t afford to clear the mortgage. Avoid this situation from the onset with a larger down payment or by making extra payments during the course of the mortgage. Alternatively, you could build up a slush fund to apply in case you really have to.

Historically speaking, the Sunshine Coast real estate market does not show major upswings and downswings. That’s your first protection. Secondly, what’s not so high to begin with can’t fall as much (reverse leveraging). That’s your second protection. Thirdly: if you ever were to have to ride out a real estate dip (which could happen, we all should know that), then wouldn’t it be nicer to be in a nice home in a nice community on a nice piece of land – than on the 23rd floor of a concrete monstrosity?

The choice is yours: come to the Sunshine Coast for security of investment, along with a lifestyle opportunity that’s pretty much second to none. Don’t forget … if you feel homesick for the big city (which too, could happen), then Vancouver is just a short “relaxing” ferry ride away. Really, how could it be any better?

An informed purchaser is a better purchaser. The blog articles linked below can be of quite some help in your home study project.

MORE blog articles about mortgages, money, houses and things surrounding real estate, can be found here:

The Sunshine Coast market stats are here to prove things: http://www.mennorealty.ca/Blog.php/dec-2012

Sunshine Coast, no we’re not an island: http://www.mennorealty.ca/Blog.php/an-island-maybe-not

A forum for real estate market predictions: http://www.menno.ca/?p=19376

Becoming a Sunshine Coast home owner: http://www.mennorealty.ca/Blog.php/ownership-benefits

A real estate buying process explained: http://www.menno.ca/?p=19392

Sunshine Coast homes of all sorts: http://www.mennorealty.ca/Blog.php/its-diversity