experts: real estate column Monday, March 05, 2012

The Year Ahead!

From inflation to migration, markets to mortgages, Ozzie Jurock looks into his crystal ball and offers his take on what this year may bring.

By Ozzie Jurock

(As featured in the Vancouver Sun)

From inflation to migration, markets to mortgages, Ozzie Jurock looks into his crystal ball and offers his take on what this year may bring.

In 1960, a chocolate bar and an ice cream cone competed for that 10 cents in your pocket and your home sold for an average price of $13,105. Yes! By 1970 we reached $24,000, by 1980 we clocked in at $100,000, by 1990 $230,000 and by 2000 $296,000. In the last 11 years we rocketed from $296,000 to where we now are at $1,100,000 (average resale home price between Lions Bay and Mission). And that ice cream cone? Approaches $4!

We can argue that we have an inflation rate of only 2.1 per cent. Poppycock! Understand that today's inflation basket does not allow for most food, housing, oil (in U.S.). Whatever your view, however, we have had a massive 50-year inflation in housing prices, driven by excess cheap, easily available money and today we are doing so much more of the same. Your bet that inflation will eventually return is a safe one.

Inward migration/job creation

According to Credit Union Central: "The slow pace of growth will reflect a drop in the number of landed immigrants to B.C. from international markets this year and increased net outflow of residents to other provinces, primarily Alberta, in 2012 and 2013.

I think it would be fair to argue that a) most of the population growth will be in the Lower Mainland and b) that the rest of the province will not participate. However, investments by Korean, Chinese, Indian and Japanese investors in small town B.C. businesses (hotels, motels, restaurants other businesses) is strong and will continue to grow.

Demand and Supply

The momentum (and momentum is vital) has been for smaller markets to decline (so lower and lower they went) and for a few select markets in Vancouver to rise (and higher and higher they went).

Interest Rates

The TD bank and others lowered its four-year rate to 2.99 per cent. No longer trying to fish for the unsuspecting (that sign-up for the 4.67 percent window rate) they took their gloves off for a fight to the death to get that mortgage customer. Synergy is what they want. There may not be much money in mortgages but there is in RRSPs, bank accounts, etc. Expect all banks to take their gloves off, nastily fire a lot of their mortgage brokers and go for the jugular to drag you in. (Funny thing is, once they have you, they forget about you!) All governments have stated that they will keep rates low, so likely they will. Still, I like to sleep in certainty. My investment property terms are fixed for five years.

Affordability

For the last 23 years Vancouver has never been affordable. It takes an average of 60 per cent-plus for the average Vancouverite to buy the average home with his/her average income. Get used to it. That will not change. If you wish to live here (or London or Hong Kong) you have to pay the price - more Mainland Chinese buying will see to that. Affordability is and will continue to be an issue in the smaller centres, however. Be sure that the small town you buy in has more than one employer.

THE YEAR AHEAD

1. U.S. real estate decline in values has bottomed in all areas' cities that saw the sharpest declines: Nevada, Arizona, California, Florida. Recommendation: Buy real estate for cash flow and future capital gain.

2. Canada will be affected by Europe's recession. Commodity markets will slow down. But with the world's strongest banks and a solid financial system we will have an okay year.

3. The Canadian dollar will trade lower than it otherwise would, hovering around par. It will likely rise toward the middle/end of the year as more and more nations will look for safety. If you plan to invest in the U.S., exchange whenever it hits par. Our prediction for a $1.05 eventually stands.

4. The Chinese New Year (of the Dragon) started Jan. 23, 2012, bringing many husbands from Asia back to the family. While here they will invest. They like good areas, new properties or large acreages.

5. The Vancouver Real Estate market will be strong through April. If you're a seller, list now! If you're a developer with new product buy real estate ads in the Chinese newspapers now. If your target buyer is Asian learn about feng shui (read about it here) and how to market your real estate by applying it.

6. No Bidding Wars. A continued buyer's market without competitive bidding.

7. Offers will be welcome. Make them! Offers over asking price will not be prevalent unless listings are underpriced. Sellers will not be insulted by a lower offer.

8. Realtors will have more time - and will spend it with you. Today, buyers can take their time, look at several homes and think about their decision.

9. There will be fewer investors. Financing for investors has been tightened and is continuing to tighten. Bank of Canada Governor Mark Carney may bring in even new restrictions on investor/buyers. He has voiced concern four times in a month. Refinance as soon as possible if you have mortgages coming due in the next two years. Money may be cheap but no one may be willing or able to lend.

10. Real estate sales and prices.

  • Vancouver - Strong market till April/May, sideways to down after that. Similar to 2011, when average prices from December 2011 versus May 2011 showed resale family homes down 15 per cent, resale condos down six per cent, overall average price down 17 per cent. Yes, no matter what you read, prices in Vancouver have fallen 17 per cent since May. We see a similar market for 2012.
  • Fraser Valley - Some overbuilding of new townhouses (North Surrey). Similar year as Vancouver.
  • Interior - Still slow recovery. Small towns bottoming. Resort towns still a struggle. Good deals emerging.
  • Vancouver Island - ditto.

We expect 2012 to be a bit of a repeat of 2011, the difference being that real estate values overall will go sideways to down after April/May. How far down will depend on consumer confidence. That confidence will - unfortunately - be influenced by the worldwide uncertainty and the ongoing lack of clarity and may go lower than we now think. Labour unrest (200,000 job contracts are up for renegotiation this year) won't help. A good time (now till May) to put your real estate investment house in order. As an owner, get that Bank of Montreal five-year 2.99 per cent lifetime low rate. IT WILL NOT LAST. As an investor, sell your non-cash-flow properties and buy only the "deal of a lifetime."

Long term, however, real estate will remain the best hard asset you can have. Tax-free capital gains, leverage and a 50-year history of price increases - from $13,105 in 1960 to $1.1 million today.

Ozzie Jurock can be reached by email at oz@jurock.com or FactsByEmail.com




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