Category: Real Estate

I wondered how the Sales-to-Active Ratios looked like in respect to the average sales prices from a historical perspective. I was able to get data on the ratios from 2005 and on. When the ratio goes beyond 20%, it means buyer demands are strong and will have upward pressure on price.

There was a big run of booming prices from 2003 to 2008 before it dropped in response to the international economic crisis in 2008. The Sales-to-Active Ratio were pretty strong at 39% in 2005 then it dropped to only 4% in 2008 when nobody wanted to buy anything.

Then the ratio increased to 27% in 2009 and the price increased in response to the demand in housing. The ratio peaked in 2011 before it dropped to its lowest at 7% in 2012 and the price dipped in accordance with the active-to-sales ratio.

In January 2015, the ratio jumped from 17% (a balanced market) to 41% in December 2015. The price shot up in accordance to the strong buyer demand in houses.

In 2016, the Ratio increased to 52% at its highest since 2005 (I have no data on the ratios before 2005). This is a simplified graph and the ratio usually zig-zag up and down from month to month. But since February 2015, the ratio had never fallen below 20% and the market remained a very strong sellers market.

So how’s the month to month sales-to-active ratio in 2016?

Jan – 32%
Feb – 46%
Mar – 52%
Apr – 45%
May – 41%

Although I see a decrease in ratio since reaching its peak at 52% in March 2016, the ratio in May remained very strong at 41% which is stronger than all the other month in 2015. Looking from the first graph, I don’t think we’ll see a big price drop unless we see ratio lower than 13% (if the ratio drop below 13% it means a buyer’s market with downward pressure on price). At 41%, the buyer demand is still stronger than the market boom back in 2005.

An interesting infographic here about the history of real estate in Vancouver with expert predictions. Some say it is will keep going up, some say it will not. What do you think?

According to Magnum Projects Ltd, a marketing company for new developments, the people buying new condos on Cambie Corridor are as follows:

People selling their house in Kerrisdale are downsizing to larger 2 bedroom or 3 bedroom condos with large balconies. Instead of moving to White Rock or Kelowna, these downsizers are now staying within the area where they used to live.

For 1 bedroom or smaller 2 bedroom condos, they are seeing a lot of buyers who are professionals whether single or couple.
For the 1 bedroom condos, they are seeing first time home buyers with parents’ financial help to get into the market.

The price for a brand new 1 bedroom 533 sq ft condo on Cambie right across from QE Park now starts from $446,900.
For 2 bedroom, 759 sq ft starts from $614,900

According to George Wong of Magnum Projects, the price of new condos will continue to rise because costs are increasing. He gave an example that recently, a developer bought 5 houses that cost $10 million more than buying 10 houses next to it 18 months ago. Not only is land value increasing, construction costs are getting higher and the City is charging more to rezone the land. All these added costs will contribute to higher condo prices in the future.

• A 2015 real estate trend outlook produced by PricewaterhouseCoopers and Urban Land Institute reported that people have been moving downtown/city centres for the past few years.
• According to Statistics Canada, the population in urban centres grew 7.1% from 2006 to 2011.

This trend is due to:

• Changing demographics as young families and Generation Y (people born between 1980s and early 2000s) prefer the convenience of downtown living
• Canadians are more aware of the environmental costs associated with urban sprawl and lengthy commutes.
• Provincial regulations that protect green spaces fueled an explosion of condo developments in major city centres.

Questions raised in the report:

• What will happen when today’s urban singles and couples start to have children? Will they move out of city to find bigger homes and better schools or adapt?
• Oversupply of units in city centres of Vancouver and Toronto?
• Are these units being bought by wealthy, foreign investors who rent these out or by owner occupants?
• Effect of the expected raise of interest rates on the housing market

Predictions from the report:

• Real Estate investors and developers believed the Canadian market is strong enough to weather a bump in mortgage rates
• Economic stability in Canada and the US will continue to attract foreign capital
• Retiring baby boomers are likely to sell stock and retirement packages to buy stable, income-generating assets like real estate.
• Developers are responding to the needs of downtown dwellers by building more residential and retail space.
• Expect to see more retail and services along city cores and major transit arteries, especially near new developments. Major brands are likely to move into these new, smaller spaces.
• Calgary, Edmonton and Vancouver will see the most residential growth in 2015 fueled by more jobs created in Western Canada.
• Calgary and the Greater Toronto will see the most retail growth.

What Kind of Home Insurance Is There?

• Comprehensive Coverage – applies to both building and its contents (excluding items named specifically in the policy).
• Basic or Named Perils Policy – covers against dangers that are named in the policy (ie. Fire, earthquake).
• Broad Policy – provides comprehensive coverage on the building and named perils on the contents (usually cheaper than comprehensive coverage).
• You can purchase additional coverage (usually in the form of named perils policy) to cover accidental damages not normally covered in a home insurance policy (ie. Sewer back up and furnace oil sills)
• Renters’ Insurance – landlords are not responsible for the possessions of a tenant. I have seen a case in a condo where the fire sprinkler upstairs was activated and flooded the unit downstairs. The landlord’s insurance and the strata insurance covered the damages to the unit downstairs but not to the tenant’s possessions inside the unit.

How Much Will It Cost

• Comprehensive coverage will cost the most but will provide the most coverage
• Name perils policy costs less but may not cover all the damages you could suffer in an accident
• Ask your insurance broker if you can get discounts for installing smoke alarms, sprinkler systems, monitored burglar alarms or if you’ve been the same insurance company for a long time.
• The deductible may also affect the price of coverage (the more deductible you pay in case of damages, the less premium. Deductibles range from $200-$10,000).
• The larger the risk a home carries, the more expensive to get it covered. Risks depend on the age of the home, if it has a wood stove or an underground oil tank, the location whether it is in earthquake zone, number of previous claims, the type of wiring, etc.
• Some insurers are refusing to cover or renew policies on homes with 60-amp electrical service, aluminum wiring or knob-and-tube wiring.

Other Points to Consider

1. Request for a homeowner policy once an offer has been accepted because most mortgage lender will require property insurance.
   Insurance companies will review a variety of factors such as certification of the fuel tank and the type of wiring (well and septic systems in rural properties).
2. Most homeowners believed their policy would provide home replacement of like kind and quality in the event of a major loss but the most common homeowner policies DO NOT cover extra costs caused by code changes and other unexpected costs.
3. Remember to increase your insurance coverage when your home has increased in value so you are covered because home reconstruction and replacement costs usually increase with home value.
4. If a home is left unsupervised for an extended period of time, many property insurance policies will consider it empty and will not cover for vandalism or damages caused by an incident such as a water pipe break. Inform your insurance broker is you plan to leave your home vacant for an extended period of time and there is insurance that covers vacant properties.

FUN FACTS

Source: The Canadian Real Estate Association 2005

1. Determine the amount you can put down for your down payment
   • Minimum 5% of purchase price
   • if less than 20% down payment, there’s additional insurance premium from CMHC Premium calculator
2. Meet with your lender or mortgage broker to determine how much you can afford (maximum purchase price). You can use the Calculators on CMHC website to get some ideas but always meet with a lender to get pre-approval before shopping for a home to avoid disappointment later on in the process.

• How much home you can buy is calculated based on mortgage payment, property taxes, heating costs, any current debts, gross monthly household income, home insurance, etc (depending on your lender).
• Usually the monthly mortgage and housing cost should be no more than 28-32% of your gross monthly household income (some lenders use take-home pay instead of gross income)
• Appraisal fee (some lenders pay for this)
• GST/PST on newly constructed homes
• Buyers pay Property Transfer Tax 1% on first $200,000 and 2% on balance (Sellers pay real estate commission)
• Home inspection – around $300 for condos, $350-$400 for townhomes and $500 and up for houses depending on the size of the home.
• Lawyer or notary public fees from $600-$1200 or more
• Site survey for single family homes, move-in/move-out fees for condos
• Title insurance is optional
• Moving expenses
• Homeowner insurance – you can get an online quote here
• Heating, electricity, cable, internet, home phones, garbage, sewer, property taxes, municipal fees
• Always have some savings for maintenance & repairs (for strata properties, major replacements or repairs may come in the forms of assessments in additional to the monthly strata fee)

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