"Housing dreams clash with reality"

You meet someone, you get married, you have kids and now you want to buy a house. It's this simple cycle that's been a tradition for many years. Although for many single families the part in the cycle that is the hardest part, is owning a home.
Even just staying in school, working hard and getting a good job is not enough to acquire the status symbol of being the successful person with a "white picket fence" house. I think that's the most fearful thought for many young hard working people because everyone wants the awesome loved one to marry and the great kids with the beautiful house. But now it seems as though even if you work your hardest to be successful it's virtually impossible to buy a house, especially in Vancouver's current housing market. What struck me the most was this article in the Province Newspaper.(May 11)A real "WoW" factor for me was that even wealthy professionals with high end jobs can't afford to buy a house. Warren Gill is a vice president of university relations at Simon Fraser University and he settled in a townhouse in False Creek. Mary Ann Masesar is a Vancouver nurse. She actually belongs to the exclusive club of the top 10 per cent of Canadians who earn more that 69,000 a year. And yet she finds it hard to own a house. Metro Vancouver's median house gold income of 69,688 wouldn't qualify for a mortgage!

Effects/Buying a home

To a buy a house, you need to get pre-approved for a mortgage. And to get a loan you need to go to the bank. It's interesting to see how the housing market can lead to so many other topics to get into. The bank is there to loan you money so you can buy a house. Looking at the housing market as whole, many things tie into macroeconomics. If prices continue to keep rising, people will eventually give up because they know it will clearly be impossible to even try to get a house. Just like inflation and how people react as though prices will continue to rise and rise. And then there are those who have hope and think house prices will fall so they wait. Like Mary Ann Masesar who has been waiting 10 years. "She regrets waiting so long." So eventually the housing market will be so high that no one will be able to afford a house and the market will crash. This has many effects to the economy as a whole. Banks would be effected if less people borrow money for homes and every one else in the housing market as well. "People who one their own homes are rapidly becoming a minority in Canada" (Province) And before the market gets better I agree that there will be a "housing meltdown" before the situation gets better.
Not only does this effect people in the housing market but also the people and places around. It's sort of like an externality. Neil Sutherland, UBC professor, says that the high prices have reduced the sense of community on campus. Many faculty clubs and failed and people wonder why. "Well, it's because nobody lives out here any more."
"No more restaurants or shops, because the people who work in them will not be able to live there."

Why is it so hard ?

Over the last three decades, Vancouver housing prices have skyrocketed. In 1975 the average house prices were around $100,000. In 1991 it rose to almost $300,000. It's now the year 2008 and housing prices have soared to over $600,000. Family incomes haven't caught up and since the prices keep rising it's getting very difficult to own a home. First time buyers are struggling because their long lived dream of owning a home is becoming impossible. It is scary to see that new families are having to work double jobs to pay their mortgages or married couples that are living in their parent's basements. More children are being raised in condos and don't get to experience the suburb feel of a house with a big backyard. If prices continue to keep rising it will only get even harder to buy a single-family home.

Youtube video

So who is buying?

If house prices are so high then who is buying houses? Well the only people who can afford houses right now are literally the wealthy boomer parents,equity from previous real estate or extremely high double income earnings. And the ordinary families who are lucky enough to own a home are most likely living paycheck to paycheck. "I'm living month to month, that's what scares me. That hasn't happened to me since I was 14 and working at the mall." Mathew Miyagawa saved enough money to buy his first Vancouver condo three years ago. He bought it for $250,000. Oddly enough this would be considered a steal now. However, the mortgage rate is so high that he is living month to month. So even people who can afford to buy a house are still struggling a whole lot. Drug Money? Another thing that struck me was in an article was the fact that drug money is also "making its way into B.C real estate." 9 luxury homes worth over 6 million in Vancouver were seized due to crime legislation.

Is the government helping?

"A step in the right direction," Jim Lippert, chairman of Habitat's Greater Vancouver. So many families are struggling to afford their own home and so Habitat Humanity decided to step up. A grant of 500,000 from the government to help build homes for British Colombians. 27 unit complexes will be available with no interest mortgages. 500 work hours are needed to be accepted, along with volunteers to build their home. Randy Forrester, 36, will be moving in with his wife and 2 children. This seems like a great idea in better government spending to "provide families security, stability and a sense of community", however many think it is way to little. "$500,000 a good move yet not enough to make a dent in housing crisis" NDP critic Diane Thorne.
What most would rather see is the government using 250 million to provide housing for people who need housing. Habitat works around the world, across Canada and around BC. Hopefully the government will step up more and help families in need before people are living on the streets.

Also, governments often enact measures such as tax cuts or subsidized financing to encourage and facilitate home ownership. If a rise in ownership is not supported by a rise in incomes, it can mean either that buyers are taking advantage of low interest rates (which must eventually rise again as the economy heats up) or that home loans are awarded more liberally, to borrowers with poor credit.

Real estate bubble : at some point it will burst.

"The worldwide rise in house prices is the biggest bubble in history," Economist Magazine. A Real estate bubble is defined as "A real estate bubble or property bubble (or housing bubble for residential
markets) is a type of economic bubble that
occurs periodically in local or global real estate markets. It is
characterized by rapid increases in valuations of real
property such as housing until they reach
unsustainable levels relative to incomes and other economic elements."

With housing problems comes with many other problems associated with the economy. We all know that the term bubble means that at some point it will burst. What will happen when it does? Well unlike the stock market crash, it is a much more slower process. Real estate bubbles usually follows great price decreases also known as a house price crash. Unfortunately with the residential market, other sectors including office, hotel and retail are generally affected by many of these variables including incomes and interest rates. This whole domino effect can take on a big toll of the economy. Economic indicators are used to evaluate whether homes are fairly valued. GDP can be effected because with the housing market problem comes with less people being able to afford houses which leads to less people borrowing money. Sometimes the government usually increases its government spending for example in helping to build homes, and providing BC housing for people who can't afford to own a home. Interest Rates can be dropped low if people are not borrowing because they can't even afford to buy a home even if they borrow money. This is because A) they did not get pre-approved for a mortgage or b) they don't have enough money to sustain living in a house. Well many places around the world have come to burst like the Japanese asset price bubble which was very damaging to their economy. This is what could potentially happen to our economy if the bubble burst. However; Urban Economist and Real estate has said that our price increases have been from 11-15 per cent for the past years. He doesn't like to look at our housing market as a bubble because he says that in a bubble you start to see 20-30 per cent growth. So apparently we are not there yet.

Now what?

When will we see change?! According to Helmut Pastick, chief economist for credit Union Central of B.C, he suspects the Vancouver Market is actually in the beginning stages of cool down. There will be modest price increases for the next years and potentially he predicts small declines after 2010. Probably due to the 2010 Olympics.

What we are not expecting -an economic recession sharp, rise in interest rates or a burst in our little housing bubble. This would all generate a substantial price drop to materialize.

What could happen? Big price drops. Which leads to oversupply of housing. This would only be achieved if droves of people dump their homes on the market which isn't expected to happen.

One thing certain: Vancouver will remain expensive.

So i would say it's up to you out there if your willing to wait until after 2010 and take a gamble . And for the rest of us teens or younger people who wish to grow up and live in a house with a "white picket fence". Dream on, unless you win the lottery off course. :)

Link to another great Blog : The US Housing Market