By Ozzie Jurock
This article appeared in The Vancouver Sun on May 4, 2002
Received a number of e-mails - even calls - from people that would like the answer to the question: Will real estate values continue to rise in my neighbourhood?
The questions include:
I even get the odd question about: "What percentage will my house value increase in Sunshine Hills in the next 3 years?"
I guess I should be flattered that people have this faith in my forecasting powers. The fact is that these are impossible questions to answer.
Real estate values will not rise or fall everywhere at the same time. Real Estate values are always local in nature, unlike stock and commodities markets, which are influenced by investor sentiments worldwide. (Unless in times of visible national inflation - which may be coming.)
Thus, communities that do depend on government employment will suffer a downturn when governments downsize (as now); communities depending on lumber exports will suffer in times of rising tariffs (as now), values rise where populations grow. And, I have news for you, even in the same place, some real estate investments will do better than others. (In 1992 - 1995 waterfront condos fell in values sharply, while single family homes rose - same market - same time. Or as today where we see a rising industrial market but a falling office market ahead for Vancouver in 2002/2003).
To predict specific neighbourhoods and the precise month of market tops - down to the street corner, this writer - in fact no one - has that power. But there are some principles. To see whether prices in general are rising we have to ask some question - do some work. Yes, work! What is the trend? (UP in Lower Mainland!) What is the confidence level in the area? (UP in Lower Mainland!) What are the vacancy rates (LOW, LOW), population growth rates? (While we keep reading that BC as a whole 'only’ went up 4.9% in population, Vancouver went up by 8.5%, Port Moody - 14%, Richmond, New West and Coquitlam - 10%).Where are interest rates headed?
All of these factors play a role in determining market values. The YUPPIES (Young urban professionals) drive the Cabbage towns and downtown cores, The DINKS (Dual income no kids) drive apartment markets, the DINS (Dual income, no sex) drive the 'no time for anything but work’ crowd. The OPALS (Older people active lifestyles) are driving the secondary markets ... they have all the money. And then of course there are the new ones the VEEPs (Viagra enhanced excited people) ... but that is another story.
One thing is certain - whatever buyer types markets consist of - how confident these buyers are about their future will determine future values. Nothing else. It is NOT interest rates. In 1979 the average price in Vancouver stood at $78,000, by February 1981 it had risen to $179,000 ... the biggest and fastest price increase ever. At the same time interest rates went from 9.5% to 16.5% for a five-year term. One-year rates were 21%! In the last 5 years rates dropped 33 times to 45 year lows and the real estate market dropped sharply in value and volume. Confidence - LOCAL confidence was missing.
So while I would like to help you predict the precise entry point, the exact increase percentage on your precise corner of real estate bliss, I can’t. No one can.
You can however identify trends and cycles and you can say goodbye to old clichés and you can use planned determined action guided by experience to create a portfolio of 'passive income' for your future.
Which brings me to the next most asked question: "...where do I find an investment that actually returns me the 14% you are talking about?" What the questioner really means is: "I want to buy something in Yaletown/Kerrisdale/West Vancouver that returns me 14% ... but I can’t find it."
Yes, the high returns downtown that we told our subscribers about a year ago, are harder to find. But returns in the Fraser Valley, on the island or the interior markets still bring that return or more. In our Facts by Fax last week we pointed to a condo in Campbell River - for example.
The unit is not in the greatest part of town, but remember you are buying an investment, not moving in. This unit rents for $400 a month. Take a 25% (investor type) down payment - or $8,000. The remaining $24,000 at 6% carries a monthly payment of $154 per month. (less at 3%). Strata fees, taxes come to another $142 for a total payment of $296. Thus, your cash return monthly comes to $104 per month or $1,248 in the first year. That’s a return of 15.6% return. Add to this a mortgage reduction of $437.43 and your return leaps to 21%. (Now multiply the units. This does not even factor in any value increases down the road.) Yes, of course, you may have the odd headache, you may have vacancies, your tenant may not love you. Nothing good ever comes easy. You can also keep your money in the bank at 2%.
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