16 January 2008
Is there a Housing Bubble? Is it about to burst?
Posted by Ryan Coffey under: Mortgage rate updates; Nanaimo Real Estate Market .
This is from a recent edition of our local paper “Nanaimo News Bulletin”. It’s basically echoing what I’ve been saying about the market in previous posts but talks a little more about the economy.
Speaking of the economy, my business associate/friend Michael Ledingham who has been keeping me/us updated about the latest news of what is happening on the lending side of things is telling me that due to a recent slowdown in the speed of the economy’s expansion, the experts are predicitng with some certainty that there will be a cut in lending rates on Jan. 22nd.
Ryan
Is there a Housing Bubble? Is it about to burst?
Two years ago, Dawn Lewis decided it was time to buy her own house.
Smartly, she cashed in some RSPs, made a down payment and launched herself solo into the sometimes dau
nting world of home ownership.
“It was time,” said the marine biologist. “I felt with prices rising so much it was sort of, get in now or it might be too late down the road to be able to afford one.”
Looking back, Lewis’s timing couldn’t have been much better.
In 2005, the average price for a home in Nanaimo was $255,297. Today, the average home costs $338,161, giving her a far higher return on investment than her RSPs would have.
What’s more, her central Nanaimo location isn’t as susceptible to high tax increases as other neighbourhoods.
For the moment, Lewis is sitting pretty.
But what about buying a home today? With housing prices up 62 per cent since 2005, is there room for prices to increase further? Or is there the feeling of a bubble about to burst as in other Canadian cities like Vancouver, Calgary or Toronto?
For buyers who borrowed large amounts of money to buy a home in the last six months, the question sits uneasily: Did I buy too high?
“There is no bubble here,” said Jennifer Lynch, past-president of the Vancouver Island Real Estate Board.
“We have geography working for us. Fortunately, because of the baby boomers, we anticipate that real estate on Vancouver Island will be in demand for years to come. Baby boomers want a lifestyle only this area can offer in Canada.”
Baby boomers looking to buy here are part of the reason homeowners in Nanaimo can sleep comfortably at night. Low interest rates are another.
Because of those factors, prices, said Lynch, have plenty of room to go higher.
“Property is still one of the best investments you can buy,” said Subhadra Ghose, president of VIREB. “Many people both from B.C., where the economy is very strong, and other provinces like Alberta, are buying second homes or vacation properties here.”
Shadowing that optimism, however, is debt load. Collectively between 2000 and 2006, the total amount of national outstanding residential mortgages rose to $694 billion, according to the Canadian Mortgage and Housing Corporation.
That number will likely rise to $800 billion this year.
“That’s because in many places houses are still affordable, even for first time buyers,” said Peggy Prill, a senior marketing analyst with CMHC.
“And there is still lots of selection. For alternative investing to real estate like GICs, returns are much lower and the stock exchange has been very volatile. Property has been very consistent.”
Prill said house prices in and around Nanaimo have a long way to go before hitting the ceiling.
Not even the storm clouds that loom over the American housing market, where prices have fallen up to 15 per cent in areas of California and Florida, will put a damper on Canadian prices. Some American markets went from double-digit increases to a major price correction in six months.
That won’t happen here, the experts say.
In Nanaimo, increased values are expected to continue in 2008, though Ghose predicts increases will slow to single digit numbers from 12 per cent rises seen over the last four years.
That’s just fine with Lewis.
“I feel really good about my house as an investment,” she said. “And I’m not concerned about the future. I did my homework before buying the house, had a house inspection done so there weren’t any surprises, and I’m enjoying being a house owner.”
One Comment so far...
Karan Says:
20 February 2008 at 11:42 am.
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