Last month, the sales of homes in the Greater Vancouver area of Canada declined by 29 percent as sellers delayed their transactions for better offers while prospective buyers are taking time to bid on their target homes.
The number transactions for single-family detached homes, condominiums, and town houses declined last month to 1,797 units from 2,545 transactions in February last year. The bench mark price of resale properties also dropped by 3.3 percent last month to $590,400, according to a report from the Globe and Mail citing data from the Real Estate Board of Greater Vancouver.
“Sales in February followed recent trends and were below seasonal averages, though our members tell us they saw more traffic at open houses last month, compared to the previous six to eight months,” said Eugen Klein, president of the Real Estate Board of Greater Vancouver in a statement.
The number of homes sold in the Fraser Valley, B.C. Canada last month also dropped by 28 percent to 913 properties from 1,269 homes sold in February 2012. The bench mark price in the area for single-family detached homes, condominiums, and townhouses increased by 0.4 percent to $422,700.
Many fear that the Canada real estate bubble might burst anytime soon. In March last year, a report from Bank of Montreal (BMO) said that Canadian households were stress tested against rising interest rates and revealed that 43 percent of Canadians said they cannot afford their homes if interest rates increases by 2%. Back then, BMO indicated that this is not a good sign for the Canada’s housing market.
A report from BMO last month indicated that the fears regarding the Canadian housing bubble are unfounded. The research firm emphasized that the prices of homes remain affordable in three-quarters of the country except in Toronto, Vancouver, and Victoria.
According to BMO senior economist Sal Guatieri, the prices of homes in most areas in Canada remain affordable despite the price increases over the past 10 years. Mortgage payments account 28 percent of the family income of average Canadian homes. Mortgage payments only eat up 23 percent of family income if Vancouver and Toronto are factored out.
Mortgage payments for an average single-family home in Toronto accounts for 43 percent of median family income, which is around $72,000 based on Guatieri’s estimate. Eight years ago, mortgage payments in the area accounted for only 40 percent of median income.
Guatieri noted that Vancouver, Victoria, and Toronto remain susceptible to a downturn because the price increases are significantly reducing the number of potential buyers who can afford to buy homes. According to him, the risk is minimal if interest rates remain low.
He pointed out that homes are considered affordable if the mortgage payment only eats up less than 39 percent of the family income when you factor in other household costs including property taxes, insurance, and utilities. However, he noted that these expenses when factored in, the number of increases to more than 50 percent.
Mortgage payments on average single-family accounts for 79 percent of median family income in Vancouver, and it goes up to 80 percent when you add up property taxes, insurance and utilities.
Only time will tell if this is the beginning of Canada’s “housing bubble burst”.