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This isn’t your Fathers’ Real Estate Market

big-and-small-houseIs wasn’t so long ago that searching for and buying real estate involved a lot of driving around and looking at new developments, watching for “For Sale” signs in the neighborhood where you wanted to live, and working with a real estate agent to look at the photocopies of Multiple Listings. And it wasn’t so long ago when a single family dwelling in the Lower Mainland of BC had an average price of $94,000. That was around 1985.

Fast forward to 2014 and while we may still drive around looking, we’ve probably done a whole lot of pre-looking on the internet and have likely used one or more of the many websites that provide the ability to search for exactly what we are seeking to buy. A single family dwelling in South Burnaby, with three or more bedrooms, two or more bathrooms and priced between $500, 000 and $1 million. Click.

vanTechnology has made it easier to search for real estate to buy but what’s really different about today’s real estate market is the price and in particular the spread between income and price. In 1985 the average cost of a house versus the average household income was about four (4). That means that the house would cost about 4 times the average income. Today, that number is in excess of sixteen (16).

For sake of argument and using 100,000 dollars as a benchmark for a house price in 1985 that would mean the average household income would have to be at about $25,000. At the factor of 16, and not changing the income, today’s house price would be $400,000. Regardless of what the actual numbers are (and they are much higher), the fact is that the cost of a house has far outstripped the average income. What to do?

Well, if you had bought a house back in 1985, you’d be sitting on some serious equity. If you’re looking to buy a house now, you’re going to need some serious income. And of course the (so called) experts will say that the market is going to go down, so just wait. As a prudent investor, we know that “you don’t wait to buy real estate; you buy real estate and wait”. Given the numbers we’ve presented here, doesn’t that seem obvious?

It appears houses in the lower mainland are well out of reach for most new buyers, and from an investment perspective, the cost versus the rental return makes it difficult to justify the cash commitment. However, there are markets that still support solid investment opportunities and where the rental income does justify the cash outlay.

If your plan in the longer term is to buy in a high-priced market like Vancouver, perhaps getting into a rental property somewhere in a market where the numbers work, is a good stepping stone to increased equity and buying power that will allow you to move up.

If your father was one of those that bought real estate back in 1985 or thereabouts, he is certainly one of the lucky ones who now have that luxury of equity. Or was it luck? Maybe, just maybe he understood the value of time and being patient and working up towards something. But this isn’t your father’s real estate market, it’s yours. What will you do with it?

At Legacy Wealth we can help guide you through the quagmire of cost versus return versus income. Why not talk with us and see what the options are?

 

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