House buyers take their time

More buyers are balking at Vancouver's high real estate prices in a market where housing is at its least affordable level since the early 1990s, RBC Economics reports.

RBC Economics released its third-quarter housing affordability index Wednesday which showed Vancouver's affordability rating decline for the fourth straight quarter.

The index shows that it would take 75 per cent of Vancouver's pre-tax median household income of $54,320 to pay for the mortgage, taxes and utilities on a standard two-storey single-family home, compared with 73 per cent in the second quarter.

For a single-family bungalow, the index rating is 70 per cent, compared with 68 per cent in the second quarter, on townhouses the index rating is 51 per cent of median income compared with 50 per cent and on standard condominiums, it is 35 per cent compared with 34 per cent in the second quarter.

"It's really splitting hairs to see the difference between [the early 1990s] and now," Derek Holt, RBC's assistant chief economist said in an interview. "We're roughly in line with the affordability calculations of back then."

Holt added that in the third quarter, a slight decline in average monthly income and higher utility costs drove the erosion in affordability. In previous quarters, he said, rising prices and interest rates took the biggest bite out of people's ability to buy.

And more buyers are starting to sit on the sidelines waiting to see what will happen to prices in the coming months.

"They're waiting for prices to come down," Sherman Quon, a realtor with Sutton Group West Coast Realty in Vancouver said. "That's the consensus among buyers, and ... some sellers realize that the good times were earlier in the year and are not getting the prices [that ... were realized earlier in the year.]"

Derek Love of Coldwell Banker Love Realty in Burnaby said well-priced listings in good neighbourhoods are selling with multiple offers, "which tells us demand is still there," but panic has definitely left the market.

Buyers can take more time to review listings, and deals tend to take a day or two to negotiate with four or five counter-offers before settling rather than selling instantly.

"Before it was sellers' terms, sellers' price, seller, seller, seller," Love said.

Now, he added, buyers have more time to consider their offers, and sometimes they're walking away from offers that are not accepted.

Love said some buyers have read media reports suggesting that the real estate market may have peaked, and "are sitting back and saying 'I'm going to wait and see what happens.' "

That coincides with Holt's observation that the pace of deteriorating affordability has started to slow "signalling a turning point in the market."

Sales in Vancouver have slowed, Holt said, which points toward the accumulation of housing inventory, which makes it reasonable to expect price gains to cool in 2007.

"A sign of a need for that [cooling] is qualifying incomes," Holt said.

He added that the income bar that buyers must clear to buy a standard two-storey home was 20-per-cent higher at $127,265 in the third quarter compared with the same quarter of 2005. In the meantime, real incomes have only gone up four per cent.

However, buyers shouldn't expect the deflation of prices that followed the Vancouver market's peak of the early 1990s, because the economy is much stronger than it was then.

Carol Frketich, regional economist for Canada Mortgage and Housing Corp., said Vancouver's economic growth will support continued expansion of the housing market next year, although prices will rise closer to six per cent and not the 16 to 20 per cent seen in 2006.

Holt added that there is a higher risk for price declines in B.C., though declines would be modest.

"If you are in it for the right reasons, buying for the long-term for shelter, [real estate] is still an attractive option," Holt said.

"If you're looking to make a short-term speculative quick buck in this sort of market, you might want to rethink that strategy. It's a whole set of risky conditions now."

(prepared by Derrick Penner/Vancouver Sun)