I was listening to talk radio on my commute to work and the half-hour segment was concerned with renting versus owning. The panellists were the president of the Greater Vancouver Real Estate Board and a producer with the radio station, who happens to be a committed tenant. Quite frankly, as the discussion developed I found myself siding with the tenant. On the call-in segment of the session, one caller lamented the dearth of assistance programs for first-time buyers. He particularly singled out the IHOP program of the seventies. Now before you start to write to REM’s editor, I know the International House of Pancakes wasn’t supporting homebuyers – but it made for a good laugh. At least in my car. On my commute. Alone. Presumably he meant the AHOP or Assisted Home Ownership Program created by a federal government that just couldn’t resist jamming housing down the throats of Canadians so we could emulate the USA and become the best housed nation in the world. My advice: Be careful what you wish for. Whether it was fixed-rate mortgages or subsidized payments, folks lined up to buy because they’d be fools not to. Waiting lists trailed from desk drawers. With five per cent down, in some cases provided by sweat equity, and house prices limited in my community to the mid-20s and then 40s towards the end of the decade, people were counting on equity gain at the end of the five-year term. Didn’t happen.
Sound familiar? Sound like the housing crisis in the USA today? When folks had to relocate for work or lost their job, a glut of housing came on the market and subsequently followed the foreclosure path. Mortgage insurance companies had so much inventory, they were at risk and certainly could have flooded the market. I recall MICC owned most of Fort St. John.
It was not unusual for listing salespersons or bank managers to find house keys dumped through office mail slots. I recall one house stripped of its plumbing and shag carpeting as the departing owners desperately sought to regain something of their equity and exact revenge. To the survivors, equity gains did come. But timing is everything. Chart 1 shows a summary of average house prices every fourth year in the Comox Valley on Vancouver Island beginning in 1977 at $42,000. By 1981, $82,000.
Then, oops! Nothing like world events and government policies to ruin a plan. Wage and price controls, Trudeau’s National Energy Policy and 21 per cent interest rates followed. By 1985, buyers saw prices drop to $58,000, a 29 per cent decline in price. (Compare that to today’s forecast, courtesy of Royal LePage, of declines in Vancouver of six per cent. Imagine your five per cent equity against that price drop. The phrase ‘underwater’ had not yet been invented.) But by 1989, prices were off and running again to $80,000. Unfortunately, there wasn’t a bell to signal the bottom – or the top – of the market. Apparently, the time to buy was between 1985 and 1989 because in the next four years prices reached $140,000 in 1993 and then $157,000 in 1997.
By 2001 the average price in the Comox Valley had slipped to $143,000, a nine per cent decline. Time to buy again? You betcha. The average price soared to $253,000 by 2005 and $337,000 by 2009, more than double in eight years. Today, in 2012, our average price is $353,000 and if you had purchased and stayed in the same home for those 35 years, your equity gain would be a modest 740 per cent. Mind you, the long green shag and canary yellow appliances with matching fixtures are likely a tad shop worn. And the non-slip daisies in the bottom of the tub? Hey, they were kind of cute! How did this happen? Interest rates, two-income families and divorce.
Matching the rise over time of housing prices was the almost lock-step decline in interest rates. From the double digits of the ’70s and ’80s, decade by decade, rates declined, slipping below 10 per cent in 1995, never looking back, to our posted rate of 4.99 per cent today – and we know significantly lower rates are available.
Pop quiz: If the cost of borrowing is lower, you can borrow (a) more or (b) less? And so we did. At the same time, someone in banking suggested all of spousal income should count towards mortgage qualification. What the heck, the baby was almost walking at 12 months, day care abounded and many spouses returned to work.
Cars, boats, vacation homes and bigger screen TVs followed until one spouse got a little tired of watching Extreme Bass Fishing and suggested the other take a hike. Not together. And they kept the TV. And the house. Not that they didn’t deserve it.
And so we reduced our household size dramatically and needed to build – condominia – and plenty of them. Immigration to a better country and inter-provincial migration following the job markets fuelled local demand. Developers have responded to demand. According to some, that response is now approaching saturation and another decline in prices is likely. Peaks and plateaus, peaks and plateaus. All we know for sure is current prices are likely on a plateau in many areas of Canada. We know it’s flat. What we don’t know is how far it is across.