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Volatility Indicator
August 26, 2016 | Posted by: Kelleway Mortgage Architects
Volatility Indicator: When Your Home Generates More Dollar Value than Your Annual Employment
According to a BC mathematician, Jens von Bergmann, Vancouver home owners netted $25 billion last year (2015) alone compared to employees in the city earning $18 billion in employment income.
“This is obviously problematic because soaring house prices need to be underpinned by an abundance of well-paying jobs and rising paycheques. And while those two cities (Vancouver & Toronto) currently account for all new job gains, wage growth has been meagre,” said Aaron Hutchins, Maclean’s, journalist and market observer.
By definition, volatility means circumstances are liable to change rapidly and unpredictably, especially for the worse in an extreme way. To achieve stability in the face of real estate market volatility, my advice is to be alert, informed and prepared for the worst - while hoping the best prevails.
Indicators to look for in your geographic market are:
- - Population and financial migration in and out of real estate markets (from local and global sources)
- - Price acceleration and overvaluation of properties (overheated demand is signalled when the number of sales outpaces new listings and selling prices often exceed list prices)
- - Overbuilding of properties (overheating the supply of unsold new housing while vacancy rates climb)
- - Employment rate gains, losses and their affect on household income (economic conditions)
- - Mortgage interest rate movement (increases and decreases)
For example, CMHC’s third quarter Housing Market Assessment report highlights that Vancouver and Toronto are showing signs of overheating, price acceleration and overvaluation. In contrast, the oil-dependent provinces hit by low energy prices have shown indications of overbuilding in Calgary, Saskatoon and Regina. CMHC has developed an analytic framework to test for the number of signals, their intensity and their persistence over time in order to evaluate housing market conditions.
For details on your location, please refer to the full report.
What's the Next Step for You?
1) Keep us in mind and on hand in case anyone you know runs into the same sort of situaltion.
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Glen Kelleway, BSc, AMP, Senior Mortgage Planner & Owner
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