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Home prices are on the rise across Canada, including in British Columbia. If you’re thinking about buying a home in this west coast province, you’ll want to do some homework on the prices you can expect to pay in various locations.
In this article, we’ll provide you with up-to-date information about home prices in BC and offer some tips to ensure you buy the right home within your budget.
What Affects The Housing Market And Home Prices?
Like any other commodity, prices are driven by demand. The more demand there is for homes, the higher the price sellers can list their homes at. There are several things that affect demand for homes, and therefore the prices that come with them, including the following:
Economic growth is typically synonymous with better income for prospective buyers. The more money people have to spend, the more they can afford on a home purchase. A robust economy is certainly a good thing for housing markets, which can help keep home prices healthy.
The better the outlook for employment — which is linked to economic growth — the healthier the housing market will be. And in turn, more people will be in a better financial position to buy a home. On the other hand, rising unemployment rates mean that fewer people will have the financial means to afford a home purchase, which pushes down demand and home prices along with it.
A huge driver of housing demand is mortgage interest rates. Most buyers take out a mortgage to buy a home, which comes with interest rates. The thing is, rates have a direct influence on how affordable mortgages are. Higher interest rates mean lower affordability and vice versa. But lower rates can decrease what borrowers pay in mortgage payments, which can boost housing demand and push up home prices.
Like interest rates, less stringent mortgage criteria can make it easier to secure a home loan to buy a home. And the easier it is for buyers to get approved for a mortgage, the more likely they will be to search for a home to buy. This can increase mortgage availability and drive home prices up.
The basic economics of supply and demand play a key role in the housing market and how much sellers can list for. When there are more houses on the market compared to interested buyers, there will be less demand for homes, since buyers have more to choose from and are not fiercely competing for the same properties. On the other hand, fewer homes on the market compared to buyers will create a much more competitive market, which will increase demand for homes and therefore boost home prices.
Average Home Prices In British Columbia
Home prices vary a great deal across Canada. Not only do they range from province to province, but also city to city.
If you are searching for a home in beautiful British Columbia, you’ll be looking at an average price of $801,039, as of September 2020. That’s an increase of 15.0% over the same month last year.
There is plenty of demand for housing in British Columbia right now, which is why there has been such a spike in home prices over the past year. In the month of September alone, the BC Real Estate Association (BCREA) posted a record number of home sales at 11,368, marking an increase of over 63% from the same time in 2019.
The top 5 most expensive centres in British Columbia to buy a house as of September 2020 include the following, along with their average home prices:
- Greater Vancouver: $1,041,300
- Fraser Valley: $867,700
- Victoria: $716,800
- Chilliwack: $594,101
- Mainland Okanagan: $531,600
Comparing Average House Prices By Province
|Home Prices 2019||Home Prices 2020||Year-Over-Year % Change|
|Newfoundland and Labrador||$272,000||$278,500||2.4%|
|Prince Edward Island||$251,792||$297,290||18.1%|
How Do British Columbia Home Prices Compare To The Rest of Canada?
BC’s average home price of $801,039 is a far cry from the national average of $604,211 in September, according to the Canadian Real Estate Association (CREA). But even Canada’s national average is quite high and saw an all-time high in September, which is over 17% higher than September 2019’s average.
So far this year, the average price of a home in Canada is expected to end 2020 at about 7.0% higher than at the end of 2019, despite the looming health crisis. Demand has spiked after the usually busy spring market stalled because of the pandemic. About 97% of regions across Canada reported home price appreciation over the third quarter, with Ontario and Quebec housing markets dominating and posting the highest-appreciating regions.
Why Is British Columbia’s Housing Market So Expensive?
While not all centres across British Columbia are terribly expensive, the provincial average is quite high, for a few reasons:
Stringent Building Codes
BC is known for having strict building codes that require a specific standard to be met. As such, it is more difficult and expensive to obtain the necessary permits to build homes in British Columbia, and these costs are typically built into the price of homes in the province.
Limited Land Close To The Coast And Mainland
Land is not as readily available in areas closer to the lower mainland and the coastline. This drives up land costs and therefore increases the cost of housing. Further away from the lower mainland, land is a lot more affordable in comparison to more densely-populated areas like Greater Vancouver and Fraser Valley.
Particularly in Vancouver and Victoria, homes are purchased heavily by investors, many of which are from overseas. This is especially true among the condo market, where investors snatch up new development in an effort to collect rental income or flip for profit. With such demand for investment properties, prices can easily skyrocket. And when investors flip their investment shortly after purchasing their properties, this impacts the rest of the Greater Vancouver area and drives home prices up.
Healthy Job Market
There are plenty of centers across the province of BC that boost healthy employment opportunities. And where there are plentiful jobs, there is also a strong demand for housing.
How To Determine How Much You Should Spend On A House
If money’s no object for you, then crunching the numbers to make sure a home purchase fits well within your budget may not be that important. But if you’re like most Canadians, you’ll need to carefully consider how much you can comfortably afford on a home. And even if you can afford it, you’ll want to set a limit on how much you spend so you don’t wind up “house poor.”
Here are some ways to help you determine how much you should spend on a home purchase.
Understand Your Expenses
Your mortgage payments won’t be the only financial obligations you have. Most likely, you have other bills to pay, like your car loan, student loan, and credit card bills, to name a few. Your expenses should be factored into the equation to help you figure out the price point you should be looking at and what your debt requirements will need to be to get approved for a mortgage.
Gross Debt Service (GDS) Ratio
Your GDS refers to the share of your income required to pay all your monthly household expenses, including the principal, interest, taxes, and half of your condo fees, if applicable. Most lenders want to see a GDS of no more than 30% to 35%, depending on the specific lender you’re working with. The lower your GDS, the better, as you’ll have more income left over for other expenses.
Your GDS is calculated by adding all your monthly housing costs and dividing it by your gross monthly income. The sum is then multiplied by 100 to give you your GDS ratio.
Total Debt Service (TDS) Ratio
Your TDS refers to the share of your income required to cover all of your debts, including your mortgage. The calculation is the same as it is to calculate your GDS, but this time, all of your monthly debts are factored into the equation, including things like student loans, credit cards, car loans, and personal loans. Lenders want to see a TDS of no more than 42% on average.
Your TDS is calculated by adding all your monthly debts and dividing it by your gross monthly income. The sum is then multiplied by 100 to give you your TDS ratio.
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Consider All Costs Of Owning A Home
There are a number of costs associated with owning and operating a home aside from your mortgage payments. All of these expenses must be considered before you run out and buy a house, even if the price can be squeezed into your budget.
Here are some of the more common costs of owning a home:
You’ll be spending a few thousand dollars a year on property taxes, depending on exactly where you live and the type of home you live in. Property taxes are based on a percentage rate applied to specific locations, which is then multiplied by your home’s value.
In the city of Vancouver, for instance, the current property tax rate for residential property is $2.92568 for each $1,000 of net taxable value. So, if your home is currently worth $500,000, your annual property taxes would be $1,462.84.
Your gas, electricity, and internet/phone bills will need to be paid every month in order to ensure that you get service without interruption. These costs can add up to be a few hundred dollars every month.
If you have a mortgage on your home, your lender will require that you take out a home insurance policy. Even if it was not mandated, a home insurance policy is still a good idea to have because it will provide you financial protection if your home is ever damaged or broken into. It will also protect your belongings if they’re ever lost or stolen. Plus, this policy will provide financial compensation if you’re ever sued because of harm done to another person in your home.
Your home and its components will need to be maintained on a regular basis. Otherwise, the condition of your home could deteriorate quickly and its value could drop.
Nothing lasts forever, and at some point, you’ll need to either repair or replace various components of your home. Things like the roof, windows, light fixtures, faucets, appliances, and HVAC system can all break down after a few years, which will require attention to bring them back up to code so your home remains in good functioning order.
If you live in a condo, you’ll need to pay condo fees every month in addition to your mortgage payments. These fees cover the cost of maintaining common areas, such as the parking garage, lobby, rooftop terrace, party room, fitness centre, swimming pool, and any other common-area amenities that your building offers. A portion of monies is also collected from every owner to contribute to the “reserve fund,” which helps to pay for more significant issues and repairs.
The price you pay is based on your condo fee rate and the size of your unit. If you live in a 1,000 square-foot condo, for instance, and your building’s condo fee rate is $0.35 per square foot, then you’ll need to pay $350 a month in condo fees.
How To Avoid Becoming “House Poor”
Many home buyers find themselves suffering from buyer’s remorse after finalizing a purchase transaction. They may have fallen in love with a home and put in every penny they could afford to buy it, but quickly find out that they may have overextended themselves financially, leaving them “house poor.” This means there’s little money left in the pot for other things, including leisurely expenses.
It’s in your best interest to do what you can to avoid becoming house poor when you buy a home. Here are some tips to keep in mind:
Spend Within Your Means
It might sound basic, but it’s worth stating: don’t spend any more than you can afford. Instead, stick within your financial means when you buy a home. If you get pre-approved for a mortgage (which you should), you’ll be given a maximum price point by your lender that specifies the upper limit of what you can spend on a home purchase. Ideally, you should spend much less than that amount to leave some money left over to pay all of your bills, plus a little extra.
Save Up An Emergency Fund
You never know when you’ll need a little extra cash to cover an emergency expense. Having a financial cushion to fall back on can help ensure that you’ve got the money to pay for these unforeseen expenses, such as major last-minute repairs on various components on your home.
Keep Your Debt Load To A Minimum
Many Canadian homeowners tend to carry a lot of debt, which can be a huge burden and a difficult hole to climb out of. Try not to accumulate too much consumer debt, and make a valiant effort to pay down as much of your debt as possible so more of your money can go towards your savings.
Should You Buy A House Or Condo?
When it comes to buying a home, you’ve got choices; namely, freestanding homes or condos. Both come with their own set of perks and drawbacks. The question is, which one should you choose?
Reasons To Buy A Condo
Generally speaking, condos are cheaper to buy than houses. While there are certainly exceptions, this is typically the case. So, if you’re trying to save money, a condo may be a more affordable option. Just be mindful of those extra condo fees.
Since your condo fees go toward the maintenance of the common areas of your building, there’s nothing for you to do to keep up with maintenance chores on your home.
Condo buildings typically offer on-site amenities to residents, such as fitness rooms, party rooms, and swimming pools. That said, the amenities offered depend on the building you live in, as some may provide more features than others.
Condos tend to be located in city centres where there are far more amenities within walking distance than an average subdivision. You’ll be more likely to be closer to work, entertainment, and everyday shopping when you live in a condo.
Reasons To Buy A House
More Space, Both Indoors And Outdoors
Houses are usually equipped with more square footage than condos, giving you a lot more space to dwell in. Plus, they come with outdoor space. Even a small front and backyard is more than what you’ll get with a condo.
Living in a condo requires that you abide by the regulations set forth by the condo corporation. There may be rules about pets, BBQs on balconies, parking, and even the colour you paint your front door. In contrast, you’ll have a lot more freedom to do what you want with a house without having to get permission from a condo board.
Easier To Sell
In some cases, it may be easier to sell a house instead of a condo. This is especially true if there are issues with the condo association that a buyer may find out about when they pull the Information Certificate of your condo. If there are any financial or legal issues with the building, that may deter a prospective buyer from going through with a purchase, and there’s little you can do about that.
Read more about buying a house vs. a condo here
There’s so much to think about when buying a home in British Columbia, with one of the points being price. Take a close look at your finances and credit health, and speak with a mortgage expert before you start the search for a new home to find out how much you can afford. And of course, team up with a seasoned real estate agent who is well-versed in the area you plan to buy in.
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