With the onset of summer, there is no question the Greater Victoria real estate market is approaching balanced territory. The single best indicator of this strengthening trend is June’s Sales to Listings ratio of 14 per cent – compared to about 12 per cent in June, 2012. A balanced market is generally considered to fall into the 15 to 20 per cent range.
After significant price softening, median prices of all residential categories have returned to their levels of a year ago. While national median prices are not available, the average selling price of Canadian homes remains approximately $200,000 lower than in our region. Although real estate in Greater Victoria is certainly worth a premium price, its magnitude remains a concern.
Last summer national prices softened when the Federal government’s tightening of mortgage lending rules affected the purchasing power of many prospective home buyers – particularly the first-timers, the primary engine that drives the entire market.
In the past two months, mortgage rates for five-year fixed mortgages have spiked upward. Since the government’s revised lending rules introduced in mid-2012, require that mortgage qualifications of prospective buyers with less than a 20 per cent down-payment, must be established based on the posted rates rather than discount rates, such buyers, especially first-timers, will be affected. As this restrictive effect takes hold, prices could soften once again.
Until now, mortgage rate increases have been modest. If however, five-year bond rates continue to rise, mortgage rates will follow in lock-step.
How should you, the buyer or seller of real estate, react? If you are a buyer and you qualify for the needed mortgage, you are well-advised to avoid variable-rate mortgages which expose you to the risk of prime rate increases. Consider only a fixed-rate mortgage of at least 5 years’ duration. This will protect you from the inevitable rate increases of the next few years.
If you are a seller, recognize in your pricing that you are, at best, in an approaching balanced market – not a sellers’ market; you must price your home realistically, or it is likely to sit unsold.
A retired corporate executive, enjoying post-retirement as an independent financial consultant, Peter Dolezal is the author of three books.