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Kirk Williams on real estate

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Realty Check reporter Kirk Williams (CBC)
What will the subprime mortgage problem in the U.S. mean for British Columbia homeowners and home buyers?


This is your chance to ask CBC News reporter Kirk Williams about the local real estate market.

His Realty Check column takes a hard look at real estate in Vancouver, with an emphasis on journalism rather than boosterism.

Click here to read Kirk's answers.

Q| Len, Gabriola: In the wake of what's happening south of the border, how long do you expect property prices on the BC Coast to remain buoyant?
A| Len, if someone could predict the future of real estate they would be a very wealthy person.


That being said, history tells us there are certain economic rules we can use to safely make some predictions. Property prices are buoyant here in BC for a variety of reasons: low unemployment, the economy is doing well, people are earning more and more people are moving here, which in turn pushes up the demand for housing. Most industry watchers believe as long as those fundamentals exist, the market will continue to be strong.

However another factor, which is a bit of a wild card, is the psychology of the market. There is a general feeling the market will continue to go up...and that plays a role in driving the market higher. Sort of a self-fulfilling prophecy.

That's where we see people lining up to buy condos and such. Should that psychology change with people beginning to feel investing in real estate is no longer worthwhile (regardless of the fundamentals) then the market could head down.


Q| Ginny, Kootenays:
Could you address what you think will happen in the Kootenays, both East and West in the next few years, or do you think pressure will ease? A number of small rural communities are hurting from part time ownership.

A| For long term residents of the Kootenays, you have seen a lot of change recently. Property values have been going up dramatically, which is good news if you own real estate, but some local people are now being driven out of the market because it is not as affordable as it once was.


The reason, as you are no doubt aware, are buyers from Alberta. The British Columbia Real Estate Association reports prices rose an astonishing 21% in 2006 and are expected to go up another 25% this year. Albertans bought 41% of those properties.

The upside? More jobs and businesses catering to the new arrivals. The downside is non-resident buyers are not active, full time contributors to the local community but all taxpayers must provide services (sewer, water, etc).

As long as the oil patch is booming (oil is now over $80 a barrel) you and other B.C. communities are going to see a lot more Albertans investing here. There is some easing of pressure as the BCREA predicts the average price of a home to increase by just 12 per cent to $294,000 in 2008.

Q| John Dow, Gibsons: Have you ever published an article on selling a property without a Real estate agent? They are really not needed as you well know and many people are finding this out, I for one.
A| We have done a piece actually, and you can see it on our website in the archive section.


At first blush it seems that agents charge a lot for what they do. How hard can it be in this market? All you have to do is stick in a sign and wait for the multiple offers to pour in.

Actually, good agents work very hard, well into the evenings and on weekends. They can bring buyers to your home and true professionals have the marketing skills to put your home in the best light possible.

Legally there is no requirement to use one but if you go it alone you should know the legal ins and outs of an offer to purchase and have a lawyer go over any offer you receive before you sign off. You should also be prepared to be on call should anyone want to view your home. That means leaving work and giving up your spare time.

A lot of people are selling on their own and there are plenty of companies out there that will help you. Some can even get your house on the Multiple Listing Service. I have sold homes with an agent and without. For me it comes down to how much time and effort you are able to free up to do it properly (and maximize your price).


Q| The Benfords, Ontario:
We are wanting to sell our home in Ontario and move to Vancouver Island closer to our children and grandchildren. Dilemma: Homes in B.C. and homes in Ontario are worlds apart. After a trip west and checking out real estate, our $187,000 home which is now worth about $250,000 here would sell for not under $450,000 on Vancouver Island. So, do we sell our home here, hoping for a sudden rise in property value and just hope for the best while in BC, or deny ourselves the joy of family and tough it out in Ontario?

A| That is a tough one. I can certainly sympathize with you. We were in the same boat when we moved here from Winnipeg. Quite the sticker shock!


One option might be to rent out your Ontario home and rent another in B.C. on a trial basis to see if you like it here. As you are no doubt finding out, people moving here do have to make some major adjustments, and not just financial ones.

The biggest sacrifice is space. If you have acquired a houseful of possessions over your lifetimes, be prepared to put them in storage because it sounds like you have to downsize significantly or spend a lot more money to get the same size home as you have now.

Maybe you can free up some space by giving some of your things to your children and grandchildren if they help pay for your move?

People move for all sorts of reasons and moving closer to family is a pretty good one. However only you can answer whether it will be worth the sacrifice of giving up space and buying a smaller home for a lot more money.

Q| Lorie, Richmond:
My daughter and her fiance are looking at buying a 1 bedroom apartment here in Richmond $165,000. Are they okay to buy in the next 2 months, or should they wait? This is their first home. They are tired of renting.
A| It really depends on why they are buying. If they are buying to flip a property down the road and cash in on a rising market, then that can be a bit of a gamble.


While the fundamentals look good for the short term, there could always be a major shock that could send the market in the other direction (another 9-11, a severe global recession, a shift in market confidence).

However if they are buying to live in, history shows that over time real estate is a pretty solid investment. If forces people to save (by building up equity) and then there is personal satisfaction of having a place of your own.

Should they wait? Predictions are that prices will go up next year, not down. The alternative is to keep renting and get expert advice on investing the extra money they would have spent on a mortgage. The catch is they have to be very diligent on putting that cash away to make it worthwhile. In fact, we did a story on this. See it here.

Q| Christine Molson, Port Moody:
With the CAD and USD dollars essentially at par - what are the current predictions for mortgage lending rates? Are they likely to increase or decrease?

A| There was some speculation that the Bank of Canada would not increase interest rates because the high Canadian dollar was hurting the manufacturing sector and higher borrowing costs would make things worse.


Also the subprime mortgage crisis in the United States created a global credit crunch and central banks around the world were reluctant to let rates rise. Now market watchers aren't sure what the bank will do.

This week Bank of Canada Governor David Dodge gave no strong hints rates would go down or up. Instead, he said the bank will closely watch how the economy adjusts to the stronger dollar. We will find out for sure when the Bank of Canada makes its next rate announcement Oct. 16th.


Q| C.E. Alfred, Port Hardy:
Given what is happening with the U.S. subprime meltdown, do you think that this will have any significant impact on our housing market and housing prices?

A|
Experts we've talked to at the Canadian Mortgage and Housing Corporation and the University of British Columbia's Sauder School of Business say our housing market is on pretty solid footing and is quite independent of the mess unfolding south of the border.


One major reason is that only 5% of all the mortgages in Canada are the subprime type (of those, only a fraction have risky variable rates), compared to roughly 20 % in the U.S.

Many Americans are simply walking away and rather than refinance their properties that are now worth less than what's owed on them.

Canadians generally put more money down when buying real estate and our foreclosure rates here are less than 1%. For now, our fundamentals (low unemployment, strong economy, high demand) point to a strong market.

But there is some concern down the road as millions more of these subprime mortgages come up for renewal next year. There are fears that could result in more foreclosures and even a recession in the States, which would cut demand for goods and services B.C. produces for the American market. All that could have an impact on our housing market.

Q| Alan Pater, Vancouver:
According to Statistics Canada, only 5% of Canadians earn more then 89K a year. According to CMHC, 325K is the maximum mortgage for someone earning 89K a year. 325K will barely buy a small condo in Vancouver, never mind a house. So, who is buying? Are banks lending innocents way too much money, then offloading the risk? Do thousands and thousands of Vancouverites have piles of undeclared bundles of cash for a huge down payment?

A|
I have often wondered the same thing. Especially when you see ads for new condos with starting prices of $2.5 million and up.


Who can afford that? Apparently quite a few.

Real estate marketer Bob Rennie says Vancouver is becoming a resort city, so we better get used to it. That means wealthy offshore buyers are snapping up their second or third homes here for recreational use.

That is changing the shape of downtown so much so that the City is trying to limit residential construction in favour of more office towers, fearing the downtown core will become a residential enclave for the super rich.

The City also forces large developers to build social and non-market housing as a prerequisite to getting permits for regular market housing. Some of those buyers could be owners with equity.

You don't have to be a high income earner if you bought a house before the market really took off. Let's say you bought a home in the 1960's or 1970's. You would have quite the pool of capital to play with. Many people are taking the capital gain from those homes, downsizing and moving into condos.

Finally, other buyers might be investors who buy property, rent it out, take the equity and buy more.

Q| J. Bell, Vancouver Island:
Is there an over supply of condominiums for sale/being built in the downtown Vancouver core and could you do the math for me in this regard? Thanks.

A|
It's easy to think there is a glut of condos in downtown Vancouver.


All you have to do is look around you and see one construction site after another. Towers seem to be sprouting up like mushrooms. However most of the towers you see are already sold out before they are built.

The Canada Mortgage and Housing Corporation tracks new home construction data every month. Numbers from August show that 1,884 high and low rise apartments were completed in downtown Vancouver so far this year and all were sold.

Many developers have to pre-sell apartments in order to qualify for construction financing. Some hold back units from sale until after construction has started, and cash in on rising prices to cover their escalating costs. Either way, demand is pretty high, and if you miss the pre-sale the only way to buy a new condo is on assignment (where you take over the contract between the initial buyer and the developer) or on the resale market when the building is finished.

CMHC says about 25% of new apartments are re-sold by investors flipping properties after a building is built.

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