Richmond Real Estate Market Report

Blog by Arnold Shuchat | April 25th, 2013

Market Observations

I'm not going to put up charts for this analysis.  I'm just going to share a few observations.

Primarily in Richmond, most people who bought in the last 3 years are technically under water.  What I mean is that they are for sure going to be unable to sell their property for more than they purchased it; they are definitely likely to have a selling price net of commissions yield proceeds of disposition less than the amount owing on their mortgage. 

I say this because in our previously expensive real estate market, buyers were throwing everything they could at the down payment and they would be lucky for a house purchase to be able to do so with a conventional mortgage at 20% down.  The market being down some 25-30% depending upon neighbourhood, means that they are 40% through their 5 year fixed mortgages and in the event they were at term today, the discussion at the bank would most likely revolve around them coming up with sufficient equity in the form of a new 20% equity payment to finance a conventional loan, or CMHC insurance for a non-conventional one.  Both scenarios are grim and place yet another purchase of the next house phase in jeopardy.

So we have all niches of home ownership who got in over the last 3 years looking at negative equity and all of the chilling effects on spending, renovating, moving up etc... that go with that.  It is the inverse of the wealth effect that happens when asset prices move up and people feel good.

When one looks at the wall of new inventory where the underlying property was purchased at a relative market high from 2010 and later, and adds to that pile the impending inventory of property that might attempt to sell before refinancing in year 5 occurs, on the assumption that prices would otherwise be relatively stable or declining, I think there will be additional downward price pressure down the road.

As it stands now, most Richmond condo owners are still better off that they bought 3 or more years ago when their current scernario is compared to how they would have fared had they thrown away their rental dollars.  Further, if their incomes are holding up, the ability to move up to one of the more expensive single family homes on the market for far less of a leap in price than it would have been a few years back is also good.  As an example, they may have lost 10-15% on their current unit, but the trade up SFD could very likely have come down 25% on a much larger number.  

This is one market where having a good Realtor do a convincing offer presentation could cause a seller to crack.  10 months ago, sellers were still listing fresh property that had not yet stagnated on the market.  It was tough to go in a "low ball" on day 2 of the listing.  Now seller fatigue is starting to show. If you can't see it, check out my "Sellers' Delusion Index" referenced in my March 22nd and following blogs.  The ratio has gone from (terminateds and expired) as a percnetage of sold listings of 27% in March of 2011 to 181% in 2013.  In other words, only about 1 in 3 listings were frustrated by being unable to be sold in 2011.  Now the fraction is the reverse!