In case you didn’t already know, I am not a qualified real estate expert. I am an accountant who has taken an interest in real estate since I bought my first home few years ago. I have done several real estate transactions since then and followed the real estate market closely (partially for investment but mostly for fun). Also, since I am most familiar with condos, my views are heavily focused on those.

As a reminder, everything I am sharing here is simply my personal opinion based on my narrow observations. Before you make any decision, you should consult an expert and do your own research. Forming your own opinion is extremely important.

Not all housing types (single home, townhouse, condos) go up and down together.

When I was looking for our first home back in 2017, condos were all the hype. I remember calling multiple listing agents (I had a realtor but I preferred to do it myself for speed and efficiency) and being told the unit was taken more often than not. I also placed an offer on a unit that was eventually sold for $30K+ over what I offered. $30K might not sound like much in 2022’s market but it was 10% of the listing price. Back then, a one-bedroom condo in the suburb would be sold within days of being listed. The prices were going up every week (the same sentiment many shared about townhouses recently).

At the end, I found my first home at the exact building I wanted on Craigslist. The owner happened to be an agent herself and decided to represent herself (which turned out to be quite a mess but it worked out at the end). At the same time, my friend was telling me about her neighbor’s single home listing. It was on the market for months with no taker. If I recall correctly, they also reduced the price as well.

Then, the pandemic hit and many office workers got to work from home. Sufficient living space became a high priority. People who did not mind sharing a 600 sq. ft. condo with their partner could no longer stay sane any longer when they also had to work from home. No one was interested in a one-bedroom condo anymore. Everyone wanted a townhouse or a single home with an office space (or two) and maybe even a yard. People also got pets which meant they need even more space.

The economics are simple – if you want what others also want, you have to pay a premium for it. The supply issues with labor and raw materials also did not help with housing supply. During the pandemic, there were developments being delayed and some even halted with no re-start date planned. There is only so much existing inventory in our beautiful province.

However, my point is that the market demand changes all the time. With offices slowly re-opening, we have yet to see what impact returning to work will have on our housing market. Do people still want the space they got a bigger mortgage for? Or will people downsize so they have the money to travel every long weekend again?

You can never time the real estate market.

When I sold my first home, the price per sq. ft. broke the neighborhood’s record. I had one open house weekend and the place was sold after receiving multiple offers. We did buy a presale to replace it at the same time so it was just a number’s game as we also bought at a high point.

Out of curiosity, I followed that unit and building over the years. I know our buyer sold during the pandemic in 2020 and took a loss. Fast forward to late 2021, a comparable unit in the same building sold for 30% more than what I sold for and 45% more than what my buyer sold for. Obviously, a pandemic does not happen all the time (thankfully). However, the market has actually cooled down already before the pandemic when the mortgage stress test was first introduced in 2018. The foreign buyer tax was also increased from 15% to 20% that same year in BC. However, based on my limited knowledge, this policy change had more of an impact on high-end single homes than the more affordable properties like townhouses and condos. Interestingly enough, as I was writing this post, the Ontario government just increased their foreign buyer tax from 15% to 20% as well.

The bottom line is, no matter what others tell you, no one can ever time the real estate market. The good news is, if you are selling and buying at the same time (which most people do with their principal residence as you need somewhere to live), chances are your gains and losses are just a number’s game like they were for me. I sold my last place at a loss but it meant I bought my current place at a great price. As a result, the loss on the sale did not bother me one bit. It turned out I was right about the great price because the developer actually increased the price for remaining units by 5% a week after I placed the deposit. Also, there was little I can do (aside from not swapping) about taking the loss other than keeping the old place as a rental. However, that comes with other considerations and complications.

Be very careful with bidding war – set a budget and keep looking.

I have participated in bidding war more than once for both my principal residence and investment property. I have never won. If I knew the property was popular based on the open house and what my realtor gathered from the listing agent (but take it with a grain of salt), I would go in with the maximum price I think the property is worth. To do that, I took into account a number of factors: the market, interest rates, mortgage policies, potential (e.g., future growth in the city) etc. If I won, I knew I paid what I thought the unit was worth. If I lost, I knew I did not overpay.

When I was looking for an investment property late last year, I initially had Langley in mind. For those of you who do not live in Vancouver, Langley is an up-and-coming city in the suburb about 50 minutes from Vancouver airport. Their housing prices have been going up since the SkyTrain plan was confirmed. So, I did some research on the market price and set a budget before I even started narrowing down to certain developments. At the end, Langley did not work out as I could not get a unit within my budget (I was offered a less desirable unit than I wanted for 10% over my budget). I could have made it work if I wanted to but I thought it was overpriced, even considering the potential of the city. Eventually, I kept looking and signed the contract for a unit in Downtown Victoria. It is a concrete build (compared to the wood frame I was looking at in Langley), comes with AC and a large balcony. Most importantly, it came in under my budget. It was another good timing as the developer increased the price for the remaining units by 10% a couple of weeks after I signed the contract.

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Whenever possible, I try not to be emotional about any real estate transaction. It is definitely easier for an investment property as I do not live in it. I know some people believe in a forever home but I believe in the possibility of making every home “your home.” Paying more than what you wanted to and can comfortably afford costs a lot more than the initial purchase price. You are bound to a significant financial commitment and will likely have to make a lot of life decisions with that in mind (e.g., changing career). In an inflationary and rising interest rate environment like we are in right now, many factors can put downward pressures on housing prices. Climbing interest rates increase mortgage payments and decrease our purchasing power because of the mortgage stress test. When people enter into a bidding war without fully considering the macro environment and their future, someone is going to be the buyer that breaks the price per sq. ft. record (aka paid the most per sq. ft.). For some, it might be fine as they can afford to do so financially. But for most of us, this is going to lock us down for years to come. It will be fine if you plan on staying put for a long time (until the price goes up again). If not, you will be essentially stuck as you likely will not achieve cash flow positive even if you turn it into a rental instead.

Vancouver is a very attractive city despite its flaws.

It might sound like I am leaning towards the market crashing with the mention of all these factors putting downward pressure on housing prices. However, I actually think that even though the market will correct itself (which it has in certain areas beginning in March 2022 already), Vancouver’s housing market will stay healthy. This is because Vancouver* is indeed a very beautiful and livable city. The weather is mild and the food scene is epic. We are close to Whistler, a world-class winter sports destination. We have an international airport with direct flights to many metro cities. Downtown Vancouver is a bit complicated right now but there are still many areas that feel safe.

If you did not overpay by going all out at a bidding war and have time on your hands, what is going to happen in the market in the next few years is not going to affect you significantly. The prices have always gone up, despite the ups and downs in between.

*by Vancouver, I mean the Lower Mainland in general.

Investment property – mortgage policy changing?

I actually began to formulate my thoughts for this post when I heard a rumor about the mortgage policy changing for investment property. Currently, you have to put down a minimum of 20% down payment on an investment property (versus a minimum 5% for principal residence). However, the rumor is that in order to level the playing field, the government is going to mandate a minimum 35% down payment for investment and restrict the source of the down payment (e.g., no borrowed funds). This has a significant impact for real estate investors as it will require a much bigger investment upfront. For example, a $500,000 condo will require a $175,000 down payment instead of $100,000. The extra 15% is equivalent to a 75% increase ($175K/$100K).

Even though it is just a rumor right now, this is exactly the thing that will affect the housing market. One thing that investors look at is ROI (return on investment). The bigger the investment (aka the down payment in this case), the larger the return has to be for the investment to be desirable. If that rumored policy becomes a reality, you can expect some real estate investors to invest in products or areas with a better ROI.

My personal opinion on this is that it is fair game. If it makes it fairer for first-time homebuyers, they should be the government’s priority. At this point, I don’t know how much truth is in the rumor and I know it can also materialize in a different version (e.g., 30% down payment instead of 35%). However, to be safe, I did immediately take actions to prepare. I re-forecasted to make sure I can put down 35% if the policy changes in the next 2 years.

Ending Thoughts

I get questions from friends and family about real estate all the time. For me, real estate has been helping me grow my net worth and I treat it as a way to save for retirement. It has restricted on what I could do (e.g., splurge on a fancy trip or furnish my entire condo) in a good way. However, it is not for everyone and it is definitely not guaranteed to be the most profitable (people became millionaires by investing in the stock market). For both principal residence and investment, you must be crystal clear on what you are getting into and whether the math works for you. Some people I know made a conscious decision to never own and that works out for them.

I did not write this post to persuade you to buy or not buy. I wrote this post merely to share what I have learned about the Vancouver housing market so you can make an informed decision. What has been working for me in the beginning when I did not have a good enough idea of the market is to start with a budget and then work backward to figure out what I can get. I did not start with what I want because it would have simply led to annoyance and disappointment.

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