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

Would you like to live on the Sunshine Coast? Can you afford to? If you’ve discovered that the Sunshine Coast is really a very nice place, you may catch “the bug” and choose to investigate the possibility of living here.

Nice house, nice view, nice location, nice neighbourhood, great school distract, wonderful neighbours. All sounds good, now can you afford to live here?

It’s not particularly hard to love the Sunshine Coast. The natural splendour is phenomenal, the villages are cute, the people are friendly, the beaches are endless AND on top of that, real estate values are much better than in our neighbouring communities.

Housing affordability has always been much better on the Sunshine Coast than in Vancouver. We still hold many real estate bargains and our real estate market is in great shape: stable and active, even when a market slow-down has just been detected in Greater Vancouver. House prices in Vancouver have gone up like crazy over the past decades – how it is that anybody can still afford them. Might this be because money is so cheap (almost free), these days? We’re twice lucky on the Sunshine Coast, not only is that very same money just as cheap to borrow here – our real estate values are “the best”.

However, even our house values have gone up too, actually substantially more than incomes. This brings one back to that essential question: how can people still afford to buy houses? To measure home affordability, it’s insufficient to just look at home prices. Many other social and economical factors come into play.

It's easy, these days, for a bank to determine if you're good for the money (most situations). They punch in your name, SIN and financial information and they know.

BORROWED MONEY

In determining how people can afford to buy houses, we have to understand and recognize that borrowed money is virtually “free” these days due to the low interest rates. If you were to deduct the percentage of inflation from the prevalent interest rates, one can almost safely say that money is actually “free” since it virtually pays for itself.

The worst housing affordability reading on record was in the first quarter of 1990. Not only were interest rates insanely high, house prices were just starting to come down. Later during the nineties, even when interest rates came down, the prices didn’t go up immediately. To determine affordability, interest rates are especially critical. When interest rates go up, affordability will deteriorate, everything else remaining the same. For instance, a 2% (interest rate) increase would place our current affordability just below early 2008 (being the most recent extreme).

The phenomenally low interest rates we’re enjoying right now make it even easier to select a home you really like, on the Sunshine Coast.

If houses get more expensive, less people can buy them. Eventually, either the prices must come down again or people need more money to equalise the system.

THE LINK BETWEEN SUPPLY AND DEMAND

Despite affordability’s impact on housing demand, it’s not always possible to make a firm, direct link between affordability and home prices. That’s because prices are established not only by demand, but also by supply. Poor affordability can certainly reduce demand, but the effect on prices could theoretically be nil if offset by tighter supply. Still, supply and demand do tend to move together over time.

You could measure housing affordability by adding the following components:

• Mortgage payments
• Heat
• Property taxes
• A reserve for maintenance

The sum of these expenses is divided by median household income; this results in the Housing Affordability Measure. Royal lePage defines three standard home types: two-storey homes, bungalows and condo apartments. These different home types are all almost perfectly correlated.

Depending on where you live in this great big country, it can cost you a lot (or not) to acquire your own home. It really depends on the local market.

LOOKING FOR THAT AVERAGE HOME

The closest thing to an “average” Canadian home may be the detached bungalow. It now takes 40.5% of the typical Canadian’s household income to afford such a bungalow. The affordability analysis is an acceptably good long-term benchmark for trend analysis, but it’s also unavoidably imperfect. This is because there are several other factors at play:

- Posted mortgage rates still exist but virtually nobody pays them. This is significantly different from 20 years ago when posted rates were the commonly paid rate for many borrowers;

- Amortization variations: Just a few years ago, we could measure with 40-year amortizations, those are now down to 25 years.

- Down payment requirements have changed over the years too. There were 100% mortgages. These days, 90 or 95% is the maximum. In real life, 79% of home owners have 25% or more equity in their home.

- The development of condo fees is left out of the calculation because those also reflect a lifestyle choice scenario.

- Non-housing debt is not considered, although there has been a substantial rise in those kinds of debts over the past decades.

People love statistical averages. However, it's fairly pointless to compare the cost of houses in various parts of a hugely diverse country - there are too many other factors.

MEASURING AFFORDABILITY

It’s no surprise that it’s so hard to precisely measure because, obviously, there are many ways to measure affordability. It’s about significantly more than straight purchase price and interest rate measurements. Also, personal desire of outcome may play a role in determining affordability – as might be the case with many calculations based on various statistical sources of input information. In all, we’re comparing apples and oranges.

One might also question the usefulness of these calculations in the long run. How easy it might have been for our parents to afford a house has little to do with how difficult it may or may not be for the next generation. All things in perspective, we know very well that “life is expensive” which sounds about the same as your parents might have said or certainly your grandparents.

We've built quite a science about real estate valuation and marketing. To read some further blog articles about these subjects, may I introduce the links listed below?

MORE on home values, mortgage developments and statistical info, here are some suggestions:

Come where debt-free retirement exists: http://www.mennorealty.ca/Blog.php/debt-free-retirement

Which is cheaper? Fixed of variable mortgage? http://www.mennorealty.ca/Blog.php/eternal-mortgage-question

Nice. A more affordable mortgage loan? http://www.menno.ca/?p=20354

A CMHC mortgage point of view: http://www.mennorealty.ca/Blog.php/cmhc-can-help

A quick look at the most recent market statistics: http://www.menno.ca/?p=20361

Sunshine Coast values now and later: http://www.mennorealty.ca/Blog.php/immune-to-troubles