Three major factors will affect home sales in the Metro Vancouver real estate market in 2011: interest rates, economic growth, and net in-migration.
Interest rates: Long term interest rates (e.g. on a five-year mortgage) are connected to the bond rate and we have enjoyed record low interest rates for the last few years. Unfortunately, from an affordability stand point the tide is starting to turn. Bond rates are on the rise and higher interest rates must soon follow in a slow but steady climb.
For sellers, this translates to fewer buyers. And if you are looking to buy in Metro Vancouver I suggest doing it sooner than later. For those needing to borrow, higher rates will mean less affordability. If you can work with cash you are in a position of strength once rate move up, and can take better advantage of more of buyers market conditions to find a good deal!
Caveat: It may not happen but if one of the European nations defaults on their sovereign debt, bond rates will spike, because investors will be looking to get paid higher returns for their investments. I suggest home owner and investor consider locking in these historically low rates, if you have not done so already.
Economic Growth: We are continuing to see slow and steady growth in our Western Canadian economy. Our neighbours to the south have a different story. While the federal government had to step in to prop up the economy, it is looking better than in the darkest days of 2009 at the peak of foreclosures. The U.S. economy is going to take a long time to turn around as consumers deleverage. The 6% savings rate is higher than their long term average of 5%, indicating fiscal conservatism. This effect will slow the growth of their economy.
A slower U.S. economy undoubtedly will keep Canada’s economy back, as we are not likely going to see double digit growth, (like we experienced in the recent past) but growth will continue as we supply more Asian markets with resources and real estate. Economic growth will have a positive effect on the pricing of real estate and continue to gradually build consumer confidence. This should help counter act the effect of rising interest rates.
In-migration: The Vancouver real estate market continues to be a haven for a large group of high net worth immigrants from Asia. Since Canada has been designated with Approved Destination Status from China, we have seen a large influx of buyers to the Metro Vancouver Markets (17% price increases to homes in Richmond and 12% to homes on the West side of Vancouver). This is not likely to go away in 2011, and it will continue to add buoyancy to the Metro Vancouver real estate market.