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

Canada can be proud of its current financial status. We’ve grown from a high-interest country in a calm world to a low-interest country in a financially turbulent world. That’s quite an achievement.

Prices are stable and the numbers of real estate sales are also stable on the Sunshine Coast. Does it appear as if we're immune to the financial turmoil in the rest of the world?

Still, the power of the big world of finance has some effect on our quaint life here on the beautiful BC Sunshine Coast. For example: our real estate values have been pushed up and our mortgage interest rates are as low as everywhere else in Canada.

As big as our world appears to be, it’s actually quite small when we look at finance. How is it otherwise that a hick-up in Greece is felt around the world and even in Canada.

We, on the Sunshine Coast, may sometimes feel a bit isolated and away from the mainstream of the big cities, we are very connected in many ways. We get all their stuff on TV and in the newspapers, we are connected by Internet and whatever other form of tele-communication, our local banks are (mostly) just branches of the big banks and even our housing market is influenced by what goes on in the rest of the world.

In good times, our real estate statistics don't run off the charts. This may explain why we don't suffer so much when the rest of the world is going through a downturn.

THERE’S NO GETTING AWAY FROM IT, IS THERE?

If Vancouver’s real estate market is hot, then we tend to be right along – although usually with a bit of a delay. Of course, our home values are still a lot better than in Vancouver, there being some distance and a ferry in-between. Our market is also a bit more stable than in Vancouver. Those swings that they experience year-over-year in the city, we don’t have those so much. The prices and the numbers of sales remain a bit more constant – although there is of course an upward push over time.

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It might be a useful exercise to look at Canada’s general governmental monetary policy. Of course, those depend on the evolution of international factors as well as various factors here in Canada. We are still benefiting greatly from the considerable monetary policy stimulus that has been flooding Canada with cheap money for a few years now. There remains a persistent rumour that rates may go up at one point – although the time that this may actually happen, is being pushed back regularly.

A good read was the Bank of Canada’s review of the mortgage and housing markets. There were some more interesting points being made in the report. A primary conclusion of the report is that households may experience a significant shock if house prices were to reverse. This would be because borrowing is often based on home equity – which would be less when house prices were to come down. There are also some intriguing findings in the report about the life cycle of debt. First of all: indebtedness peaks in the 31–35 age range; secondly: mortgage credit is the #1 driver of total debt and thirdly: households that have higher expected future earnings will often raise current spending.

Across Canada, there has been a debt explosion over the past few years - logically explained by the tremendous availability of cheap money.

THE DEBT EXPLOSION

In the past 30 years, the ratio of mortgage debt to disposable income has risen from about 50% to almost 100%. A large increase in total household debt since 1999 consisted primarily of home-equity extraction… which increased from around 2% of disposable income in 1999 to a peak of 9% in 2007. Much of the increase in home-equity extraction consisted of net mortgage refinancing which could be partly explained by rising housing prices from 1999 to 2010. HELOCs have also risen signifi­cantly since 1999 (HELOCs now represented almost 1/4 of the total increase in household debt).

Despite significantly rising home prices, income gains and low interest rates have supported affordability. This has led to increases in home ownership and mortgage debt. At the same time, home owner monthly paymentshave remained fairly constant during the past 20 years.

The dramatic increase in home prices of the past 10 years can be attributed to many factors: population growth, rising incomes and declining mortgage rates. Not to be overlooked either is the fact that home values were somewhat depressed during the nineties, creating an extra-low starting point.

Should we expect that our market will change? Of course we should. The only thing remains that nobody knows when or in what direction.

HOW TO GO ON FROM HERE?

Simulations suggest that a 10% decline in house prices can generate a peak drop in consumption of about 1%. Given the increase in household indebtedness and household exposure, further house price fluctuations have markedly got more likely.

Taking advice from one’s bankers may be a relatively safe bet. It’s not that they can see in the future but they do have a lot of experience in looking at matters concerning money. Between the lines, one can possibly also read some advice from the Bank of Canada. Since mortgage rates are at a record low, we are to understand that they can’t go down any further. We should expect them to increase. This might mean that it’s smart to lock in personal mortgage rates now.

The Bank also notes that the difference in interest rates between a secured and non-secured line of credit is significant, even at the same bank. A difference of 2.75% in rates is not uncommon. This might mean that it’s smart to get a HELOC as opposed to a standard (non-secured) line of credit.

Fact remains that our local real estate market is stable and manages to offer a great alternative to folks from the big city who don't want to play "the game" any longer.

MORE blog articles about home, mortgage and real estate markets are available here:

Reasons to love the Sunshine Coast market: http://www.mennorealty.ca/Blog.php/a-magnificent-setting

The strategy of staging your home: http://www.mennorealty.ca/Blog.php/beware-of-staged-homes

It’s got to be a good deal: http://www.mennorealty.ca/Blog.php/tremendous-bargain

Financial status and market developments: http://www.mennorealty.ca/Blog.php/up-r-down