Real estate window of opportunity narrows

Renowed investor Warren Buffet says "I've been waiting for this day for 10 years." What Buffet is referring to is the recent US real estate downturn. Why on earth would one of the greatest investors of our time see a shining beacon of light in the current state of the economy? Simply put - because everything is on sale. When confidence in the world dwindles, short term price reductions occur on quality products. Single family homes in BC are no exception.

The question is: How long will this last?

According to the BC Real Estate Association (BCREA) residential sales volumes were down 51% compared to October 2007. "Housing demand was negatively affected by global financial crisis and sharp downturn in the equity market" said Cameron Muir, BDREA Chief Economist in November 2008. He adds however "Home sales are unlikely to fall much further....the fundamentals (of the economy) support a higher level of home sales than experienced last month. Furthermore, although single family home starts are correcting in response to market demand, Robert Kaveie, analyst for BMO Capital Market observes "Single family starts have actually been declining in BC over several years and that the numbers are much closer to actual need."

In fact, 96% of single family detached homes built were absorbed within the month of completion, and only 20% of all new housing starts will be single family homes.

What does this all mean? It's a clear sign that single family home inventory has fallen below normal levels in BC, and prices will eventually be on their way up.

Many experts also point out the economic situation in Canada is nowhere near as serious as the US. "Canadians should realize the Canadian economy and housing market are in much better shape" says Cal Lindberg, President of the Canadian Real Estate Association (CREA). "The US market is much different than Canada, most notably because the Canadian market does not have the same oversupply of homes." The Lower Mainland single family home market is definitely well off compared to most. And while consumers are worried about the world economic turmoil, a new study conducted by RBC Royal Bank reports the overall intention of Canadians to purchase a home in the next two years has remainded steady. "Despite economic events," reports Catherine Adams, Vice President, Home Equity Division for RBC Royal Bank "We've noted that Canadians still believe a home is a good investment."

In fact, those firm intentions to invest in a new home, but hesitant to make the move because of the economic outlook, can take solace in a statement from Mike Carney, Governor of the Bank of Canada "The Bank expects growth to be sluggish the first quarter of next year and then to pick up over the rest of 2009 and to accelerate to above-potenital growth in 2010."

For the vast majority of people, the premise of a falling market affecting the biggest purchase of their lives is unsettling at best. But Buyers should bear in mind that buying sooner than later can offer financial and lifestyle advantages.

For example, by purchasing the right home that meets all your needs now - a home with strong underlying value, in a good location close to amenities and in a neighbourhood built by a professional developer with strong architectural controls and standards - you'll begin building long term value right away. Furthermore, by taking of current low mortgage rates you may significantly reduce your total cost of ownership even more than you would on a future purchase price at higher interest rates once the economy begins to trend back up.

Finally, recall the simple law of supply and demand. To quote Warren Buffet once more "When others are fearful, be greedy. When they are greedy, be fearful." To translate that into the Lower Mainland situation, there is a dwindling number of extremely high quality single family homes available now. Smart builders have already adjusted prices to reflect the reality of the new market, so this is the time smart investors will make their move. Prices will soon be up and selection down. Those sitting on their hands now may experience a chronic case of nonbuyer's remorse later. In closing, take a moment to think about words of Cal Lindberg, "The downturn in consumer confidence will pass, and when it does, housing demand will rebound, especially when they realize the window of opportunity to buy at low interst rates will begin to narrow once economic growth shows signs of rebounding next year."

Words well worth heeding.

(Source: Vancouver Sun)