The market is stacked against buyers out there. Open houses are swarming, places that haven’t seen a coat of paint in 30 years are going in bidding wars, and the selection sucks. The leisurely pace of the market we saw for a few years here seems to have been temporarily banished. Buying now, at least in the active segments of the market like single family homes in the core means acting fast, putting in offers at or over list, and having very limited negotiating power. Sounds like a bad time to buy. But what if it isn’t?
Despite the absolutely miserable conditions out there for buyers, I’m going to go against the grain here and take a look at why now might not be a bad time to buy.
- The market is hot. Yes that makes it tough to buy, but those kind of markets have historically lead to price gains.
- Affordability is not terrible. In 2007 it was bad (the year that HHV was formed), but since then interest rates came down, prices flatlined, and incomes increased. Recent price gains have erased some of those affordability improvements, but overall we’re still better off than many points in recent history. Something to keep in mind is that because of our low interest rates, we are exposed to significant rate risk. If mortgage rates bumped up a couple percent, affordability would evaporate. However I don’t see that on the horizon with the way the national economy is going.
- Prices seem to be very sticky in Victoria. For whatever reason, be it reasonably stable employers or stubborn locals that refuse to sell in a down market, prices have historically not dropped rapidly very often. Even with the market well into buyers market territory from 2011 to 2014, prices only dropped by a couple percent a year. So if the market did cool off rapidly, I wouldn’t expect a large price decline without an additional adverse event like significant increase in unemployment.
1981 to 1985 is the only real crash we had in our history, and even then a lot of the price declines came from inflation rather than nominal decreases.
- Prices are up only about 1.1%/year since 2008. One could say we should be rejoicing that our prices aren’t up 60% since then like Toronto.
- It was better to buy a year or two ago, but that has no relevance today. The past is the past and there’s no point worrying about it now. The only question is, is it better to buy now or next year?
- The rental market sucks. The vacancy rate is very low and that means it’s tough to find a rental, and rents will be increasing at a steeper rate than they have been for the past few years.
- The market could get even worse for buyers. Despite the level of activity, it has been even hotter in the past for extended periods, and could very well continue to tilt towards sellers.
- There are still deals out there. Price gains seem to be mostly limited to single family homes, and even there mostly in the core areas. If you are looking for something else, there are still opportunities to buy at prices that haven’t budget much from a couple years ago. For example condos are still down almost 10% from the 2010 peak.
- It’s springtime. That might not mean the situation improves, but at least new listings will start to pour on, and with new listings comes the possibility of some gems. Just don’t expect those gems to be overlooked.
What do you think? Is it a good idea to buy in this market or have I drunk the VREB koolaid? If someone is looking to buy into this market, are there any strategies to employ? What segments of the market are less overheated? Let me know in the comments.