As the real estate market softens in most of BC and the inevitable rise in interest rates emerges, the big question is - when rates go up will property prices drop and by how much?
Since we don't have a crystal ball we can only look back to historical data too see what could happen in a similar situation moving forward.
If we look back 10 years to January 2001 the 5 year posted bank rate was 7.58% and the average price in Vancouver for a detached home was $366,000 and $243,000 in the Fraser Valley. Inflation was 3%.
In January 2009 (a few months after the credit crisis) the 5-year posted bank rate was 5.79% and the average price for a detached home in Vancouver was $728,000 and $385,000 average price (detached and condo) in the Fraser Valley. ($659,000 for Greater Vancouver). Inflation was 1%
Today the posted 5-year fixed bank rate is 5.19% and the average price in Vancouver for a detached home is $749,000 and the average price (detached and condo) in the Fraser Valley is $455,000. ($810,045 in Greater Vancouver). Inflation is 2.3%.
We can see that prices have risen over the past 10 years as interest rates have dropped. However, even in 2009 house prices had doubled with only a 2% drop in interest rates over the same period. We must assume supply and demand play a role. Population in the lower mainland has grown from $1.9M in 2001 to $2.5M today and forecasts of continued growth primarily from migration and immigration will drive demand for housing. Will it be enough to sustain higher prices over the long term? That is a difficult question to answer. The answer may differ by region and even neighborhood.
I have always believed that Vancouver being ranked as one of the most livable places in the world and only the 25th most expensive place to live (according to recent stats from CNBC online) means demand on housing here will remain. There may be ups and downs along the way as we adapt to economic shifts - a further rise in inflation will put downward pressure on house prices while supply and demand can put upward pressure. Over the long haul - owning land or real property is still a good idea as long as you are prudent about buying what you can afford. Rising inflation will only increase consumer cost of living including rental housing so those with the means to buy a home that provides rental income will see good value.
