The factors affecting Metro Vancouver detached home prices are not the same as those in Seattle. The graph above illustrates the relative price gains for Metro Vancouver and Seattle from 1994 to 2012. Seattle gained 2 times, while Metro Vancouver gained almost 3 times in value over the same period.
Metro Vancouver suffered short one year drop in home sales and prices during the credit crunch of 2008. Home sales and prices recovered within a year, and moved higher when interest rates were slashed and kept at ultra-low level around 3% until today.
Average older detached homes in Richmond, Burnaby and East Vancouver are currently selling between $740,000 to $850,000.
The current rental income from a older detached home with around 2,300 sq ft living area is approximately $2,300 a month. With a mortgage of $400,000 at 3.15%, amortized over 25 years, an investor is at beak-even point with his/her real estate investment paying $1,925 a month principal and interest. The balance $375 a month from the rent barely covers property tax and routine repairs. Any big ticket item repairs will have to be met with the investor’s own savings.
In the above example, an investor after providing $135,000 (25%) down payment, and financing his purchase with $400,000 mortgage, his investment will break-even at a purchase price of $535,000. Current home prices are way higher than the above figure.
Home prices in Metro Vancouver are reversing the gains made the past 6 years. A drop in price of 30% is required before a home in the above areas is economically viable for long term investment.
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