Snapshots

Rental prices are getting more and more downward pressure from the increase in supply, especially in downtown Vancouver.  I believe other places are experiencing the same things, but to a lesser degree.

Lots of sellers will try to sell this spring.  Desperate ones will sell at a loss.  Not-so-desperate ones will not be able to unload because they won’t and don’t want to bite the bullet.  They will then become accidental landlords and compete in the rental market.  They will compete against new rosy-eyed owners who bought the “investment property” from the desperate sellers.  They will compete with new vacancies resulted from ex-tenant-turned-owners who bought from the desperate sellers.  But there won’t be that many, because overall volume of sales will be low, because people are getting laid off left and right, while banks are eating big losses and are more reluctant to lend.  The biggest competitors will be other accidental landlords who own multiple units all over town.

My coworker & team leader was talking to me about the interest rate drop a few days ago.  Basically the principle portion of their monthly payment have been increasing dramatically due to the drop in rates (both on variable rates).  Just now I read about how real estate agents use the drop in rates as one of the reasons to buy.  All I want to say is, interest rates and home prices are a direct inverse relationship.  The higher the rates, the lower the price, and vice versa.  Rates dropping is not a very positive thing for potential buyers, since all it does is raise the home price, since everyone who is a potential buyer can now afford more loan.  Conversely, a raise in rates is not a very negative thing for potential buyers either.  Rates dropping, however, is terrific news for existing home owners (hopefully who didn’t overpay for the home) because it significantly changes the speed in which they can pay back the mortgage.  Rates rising, in turn, is terrifying news, because not only that they may take longer to pay back, they might go into bankruptcy if they were already over extended when they overpaid for the home.

Interest rates should not be a big factor in affecting one’s decision to buy.  In fact, the lower the rates, the more cautious the buyer should be, because this means the chances of it rising is higher than the chances of it dropping, after you have paid the price (thinking that you can afford the place using the low interest rate).  The current lowering of interest rate is a reaction to the market going off a cliff, hoping to entice just a few more buyers.  Yet the prices are still falling.  No, the fall in interest rates do not really (and should not) turn fence-sitters into buyers, as we shall see.