Interesting story in the Globe and Mail about the Vancouver market. As I've indicated in the past, I think our hot Toronto market is going to be buoyed in the short-to-mid term by financial assistance from the parents to their adult children via downsizing, gifting or inheritance.
http://www.theglobeandmail.com/glob...chance-in-hot-housing-market/article23516653/
Great jobs, cash in hand, but no chance in hot housing market
KERRY GOLD
VANCOUVER — Special to The Globe and Mail
Published Wednesday, Mar. 18 2015, 11:41 AM EDT
This is the first in a series of stories looking at the challenges faced by different generations of people who are in the market for a home – from first-time buyers, to growing families, to boomers who are downsizing.
Judith Silverman and Jeffrey Giffin illustrate perfectly how wrong it can go when a city’s property market is burdened by soaring prices.
The couple, who immigrated to Vancouver from Colorado a decade ago, are educated and employed in jobs with promising futures.
She’s a research scientist with a PhD; he’s an energy efficiency manager and holds a masters in engineering. They have a child, they cycle to work, and with three years of savings and the support of family, they’ve scraped together a decent down payment. It has also helped that family support came in U.S. dollars.
As far as contributing members of the community go, they check all the boxes. And yet, after six months of searching for a townhouse not too far from their jobs at the University of British Columbia, they are about to give up. They are frustrated by the lack of affordable housing.
“Every time we walk into an open house, there are 35 people already there and the selling realtor is telling us, ‘We are accepting offers tonight.’ So you have to put together an offer where there are no subjects [conditions] – and you only get to see the house maybe once,†says Ms. Silverman, 33. “You’re making the largest financial decision of your life, and a highly competitive market doesn’t allow you to do your due diligence. It’s frustrating. I didn’t realize it would be so bad.â€
Their budget is in the $600,000 range and they have a down payment of about 20 per cent. The couple is on the hunt for a
townhouse or two-level condo on the west side, in Kitsilano. But Ms. Silverman says properties in their price range are sadly lacking. They are often dark, with few windows, and some don’t even have en suite laundry.
In six months of searching, they found just one property that worked for them, so they
made an offer. However, so did seven other prospective buyers, and the property sold for $30,000 more than the asking price.
It’s a scenario that’s been playing out in Vancouver since January. The mild winter has kick-started an early buying season for young couples and families trying to squeeze into the market. Their demographic is driving house prices in large pockets of Vancouver, Toronto and even Calgary, despite that city’s softened market.
They want detached houses, but those who can’t afford them are fuelling the market for central townhouses and duplexes.
Matthew Boukall, researcher for real estate analysts Altus Group, says Calgary families are increasingly looking to inner city townhouses instead of the usual suburban house. They can get a 1,500-square-foot townhouse for $550,000 that’s still close to downtown and within reach of amenities.
“They get to live in a community that was built in the 1950s that has parks and schools, and everything they need. That’s where I think we’ll see more and more families move.â€
In hot markets like Vancouver,
young couples have adjusted to low interest rates and know money is cheap, and they’re not expecting a drop in house prices any time soon.
They’ve finished school, have entered the work force and, more often than not, have received inheritances or financial support from parents.
They’re ready for a home that fits their needs, but are confronted by the realization that
there are hundreds of buyers just like them. The competition is fierce.
As Ms. Silverman puts it: “It’s been disheartening to spend literally three out of four weekends in Vancouver going to open houses.â€
Real estate agent Keith Roy recently listed his own home, on the
city’s east side, for $999,000. After living in it for three years, the house had gone up so much in value that he felt he had no choice but to sell. Upon listing, he received
13 offers. They all came from couples between 30 and 40 years of age. Several of them had received family inheritances. He sold the house in seven days, for $1,167,850.
“I hear grandparents’ inheritances are helping a lot,†says Mr. Roy, also 33, but doesn’t think he’ll have the benefit of inheritance. “They’re helping to push that part of the market.
We have enormous wealth transfer coming down the pipeline.
“Last year, I sold a couple of grandparents’ estates, and the parents got the money, and they gave it to the kids to buy houses.â€
That
equity transfer was a hot topic for marketer Bob Rennie in his address to the Urban Development Institute in Vancouver last year. Mr. Rennie told the crowd of developers that
people 55 and older are sitting on real estate equity valued at $163.4-billion.
That sum is steadily trickling down to children and grandchildren, fuelling the first-time home buyers market. An inheritance of $300,000 to $500,000 is a solid down payment on a house. The benchmark price of a detached house in Metro Vancouver is $1,026,300, which suddenly becomes affordable.
Add low interest rates to the mix, and it’s a shopping frenzy. February sales for Metro Vancouver were 20 per cent higher than February of 2014.
“They are so used to low interest rates, they are not afraid of a five-year renewal at this point,†says Mr. Roy. “There is so much confidence in the market that people are not afraid to come to the table with their best possible offer. There is also a sense that people have to pay more than the previous owners paid.
“And
these buyers are accountants, lawyers, engineers, doctors, tech people. And they are double income. So you’ve got two people making six figures.â€
The problem is, however, that
inventory is low. “Good stuff comes up, but it’s gone in a week,†says Mr. Roy. “Virtually every sale is an auction.â€
Ms. Silverman knows how that feels. After recently viewing a property that was perfect in every way – but noisy with bus traffic – she and her husband have decided they might try a different tack.
“We just had discussion about how, right now, we can’t afford what we’d want to live in. So, we may need to take the money we pulled together and invest it wisely, and see if in two years we are in a better position to buy.â€
