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

Nobody knows but many have an opinion. The market “is” going to go up. Or the market “is” going to go down. They know this for certain – often guided by wishful thinking. Or at least by wisdom that’s beyond the factual.

Do YOU know what the market is going to do? That would be a miracle really because none of us are certified to predict future events with full certainty. Good luck!

A simple question like “what’s the real estate market going to do” will never get answered although many have an opinion. In my line of work, it’s one of the most frequently discussed topics between clients and agent; and even between colleagues.

Some say that we’re headed for a real estate crash although this is quite unlikely, statistically speaking. What we might expect to see, say many, is a slight slowing of the market. Most people believe that a fairly steady real estate market is best for all: buyers, sellers and continuing home owners. What we might be hearing is that the “boom and bust” peak-and-valley period is over. Many would like that.

The Sunshine Coast housing market being quite different from the Vancouver market or that of the various markets across our vast country, it’s remarkable that some banks make general predictions right across the country as if we’re all just one big market. Just last month, one of our largest national banks pronounced the idea that Canada’s housing market will not be headed for a crash, suggesting that prices are only “moderately high across the country.” That this would be the same in all markets across the country is a silly notion.

Opinions are formed, in part, by what we hear on the news. If the market in say Toronto is performing a certain way, what does that tell us about the Sunshine Coast?

ABOUT WHAT WE HEARD ON THE (TORONTO) NEWS

Often, clients ask me to comment on market reports that originated in, say, Toronto. How would that relate to our local real estate market? Others are confused by the activity in the Vancouver market, which is always a bit out of step with what goes on here, on the Sunshine Coast.

When an economist says that we should expect the housing boom to cool rather than crash, we still know very little. When they say that the housing boom is unlikely to continue unless mortgage rates drop much further, what do they really mean?

We all know that home values have risen at a faster pace than the general cost of living. We are being assured that the signs are pointing to a soft landing where prices stabilize. One might say that stabilized prices are actually slight value decreases. Why? Because if inflation ticks on at (say) 2% a year and a property’s value does not go up, then it actually just got 2% less expensive, relatively speaking.

Prices go up and prices go down but usually they go up. Real estate prices, when viewed over the longer term, have always shown an upward trend.

WHAT WOULD HAPPEN IF PRICES REALLY SOFTENED A LOT

A big value reduction (say 20%) would make quite a few people house-poor. Those with maximized mortgages (95% for instance) would notice the drop in value the most. Their houses would be worth about 15% less than what’s owed on them.

If that were to lead to foreclosures and forced sales, then we might see CMHC in a financial bind. After all, they would pick up the slack (not the banks). If CMHC were to run out of money as a consequence of numerous big defaults, then we’re all in trouble. We’ll all have to contribute to such problems with general taxes. This is because CHMC is backed by the Federal Government.

What we also know is that, If prices “for ever” were to go up, up and up, then hardly anybody would be able to afford a house any longer. By this logic alone, prices shall not always go up, there will be corrections or delays. It’s comforting that the bank says that the national housing market is more like a balloon than a bubble. (Bubbles may burst, a balloon deflates slowly.)

When things go sideways in Greece, why would that impact us? Must be because it's all connected to a point. This renders it even more impossible to make predictions.

OTHER FACTORS AT PLAY

In Canada, we have demographic factors, consistently low interest rates, relatively low construction costs and an influx of foreign buyers – all contributing to market stability. Apparently, this would be true all across the country but certainly in the Vancouver area (foreign buyers). On the Sunshine Coast, we have the added benefit of demographic factors, the area being so ideal for middle-aged (more affluent) buyers.

On average across Canada, home prices are 4.9 times higher than the average household income. A decade ago, that ratio was at 3.2.

Vancouver’s ratio currently sits at 10 times higher than average household income, Toronto’s is at 6.7, Montreal’s is at 4.5 while Halifax is at 3.8. Those are all on the high side.

The latest data from the Canadian Real Estate Association show that the national average price was $347,801 in December. That’s a 0.9 per cent increase over the previous 12 months. That was the lowest level of growth since October 2010 and actually somewhat below inflation, a possible sign that the market is already cooled.

When you buy at the peak and sell when prices are at their lowest, it's possible to take a loss on real estate. It's comparable to the stock market, in that sense.

SCARY SCENARIOS IMAGINED

Looking to the future is always fun but quite impossible in reality. If we were to imagine the sudden occurrence of a heavy interest rate hike, things would be all different. Also, a widespread Canadian recession, or a severe worldwide economic slowdown would have an effect on our markets. Big disasters or wild political events would also do strange things to the market.

Specifically in our area, if the influx of Asian buyers suddenly drops off for whatever reason, then that too would take some air out of our housing markets. Barring these triggers, a dramatic correction is unlikely, the bank says.

Isn't real estate interesting? It touches on so many doctrines - you can keep on studying the topic and never get bored (reading suggestions linked below).

MORE market-related real estate blog articles are available here for your further enjoyment:

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

Step by step real estate marketing: http://www.mennorealty.ca/Blog.php/the-logistics

How to prepare for the next showings: http://www.menno.ca/?p=19663

Marketing a true bargain: http://www.mennorealty.ca/Blog.php/tremendous-bargain

What are “illegal rentals” really: http://www.menno.ca/?p=19787

Many have an opinion about home ownership: http://www.mennorealty.ca/Blog.php/ownership-benefits