Derek Hynes was thinking like a lot of Vancouverites when he purchased his one-bedroom condo in one of Surrey’s new towers. He thought its value would rise each year, enough to make the purchase an investment in his future. He’d build equity until he had enough to purchase a bigger place, maybe even the down payment on a house.
Of course what Hynes is discovering is quite the opposite. As the G&M notes, the expectation of buyers like Hynes is that that every home should build equity, a hangover from the pre-2008 years, when it seemed that real estate had nowhere to go but up, up, up. Average income earners were purchasing presale units and flipping them by the time they were completed, pocketing $50,000 or so in the process.
But those days are long over and articles like this one in the Globe show that a shift is underway.
As many condo owners who purchased five years ago and are trying to sell today can attest, the equity simply did not materialize. They are often breaking even, or selling for slightly more or less. Today, a condo in Vancouver is no longer viewed as a winning investment, so much as affordable housing and forced savings plan.
And if you consider that mortgage payments are still higher than those in Toronto, condos aren’t even that affordable. A recently released real estate report on Canadian cities says: “Despite the 2012 drop in Vancouver’s median condominium price and a further decline expected in 2013, the area’s affordability is forecast to remain the weakest by far among this report’s eight cities, both this year and throughout the forecast.”
Say it isn't so?
Apparently Hynes, purchased his 620 sq. ft. condo for $182,000 (which was $7,000 below the asking price) and he was recently thinking of selling the unit until he saw that his neighbour on the same floor, with the same suite, has just listed for $179,000.
Talk about a kick in the groin.
“I thought it would at least keep its value, so I’m surprised,” Mr. Hynes says. “If it had kept its value, I definitely would have sold right now.”
Hynes says his work colleagues, friends and relatives are facing the same situation. His cousin just sold her condo after renting it out for five years, and she lost money on it.
“It was for the exact same reason I’m losing out,” Mr. Hynes says. “Because there are so many condos in the area.”
What sellers are discovering, according to the article, is that there are too many new condos. Since the economic slump of 2009, condo starts have been on the rise, and above the 20-year average ratio of starts-to-population growth. Developments were going up almost as if it were 2007 again.
“This left the inventory of completed but unsold apartment condominiums very high by the past decade’s standards,” says the Genworth/Conference Board of Canada report, which provided those numbers.
With the slump in prices, sales have recently picked up. The benchmark price of an apartment decreased 1.1 per cent from August, 2012, to $366,100 in August this year, according to the Real Estate Board of Greater Vancouver. Sales last month went up 40 per cent over August, 2012.
“Even though the real estate market is booming, the prices mostly remain the same,” says Vadim Marusin, who’s the founder of Estateblock.com, a new real estate search engine that maps the Multiple Listing Service listings
Urban Analytics’ Michael Ferreira tracks the market on a quarterly basis, and he sees a condo glut that’s softening prices.
“We’ve seen the unsold inventory of product under construction increase steadily over the last year. Not to the point of concern for oversupply, but certainly to the point where buyer urgency is not as great.”
Tell that to the people like Hynes who are watching their condo values drop in price since 2008 instead of going up.
Because buyers know there is another building coming up, they aren’t pressured to buy, adds Urban Analytics’ analyst Jon Bennest.
“In some markets where there’s a lot of supply and not as much demand, it’s hard to say that we’ll see a price increase. In others where there is less supply and consistent demand, we do see those areas increasing. So it’s very specific to the submarket,” says Mr. Bennest.
Enter Bob Rennie and his "Transportation, transportation, transportation" mantra.
The bulls will claim that with the city population steadily growing by about 37,000 people a year, the condo will remain the only affordable housing option for a lot of people. And the people with real equity – foreign investors and local boomers – will continue to look to them for investment.
But how long will we continue to cling to the dream that wealthy foreigners will support and maintain our over inflated market?
For property owners like Hynes, who are already in a loss position, they are now like the stock buyer who refuses to cut their losses.
Hynes says he’ll hang onto his condo long enough to see that happen.
“I’m in a situation where I cannot afford to sell it, so I’m going to be renting it out, probably next month.
(Hynes now has a family and says he will rent out his condo and use the money to rent another place, in an area with better value.)
“For me, it feels as if I am moving backward in life, but I have no choice, because I need to move on because I have a family now. I am going to move out and go rent a basement suite in Coquitlam.
“I know a lot of people can’t afford their mortgages because there are tons of cheap basement suites in Coquitlam.”
Exactly.
And when that spark comes you know things will ignite rather quickly.
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