Richmond housing market: good demand in some market segments

May 31, 2009

Why the Richmond housing market is so active lately?

The Richmond housing market turned bullish lately, especially family homes that are priced from $350,000 to $700,000. These homes include both townhouses and detached homes. The popular Richmond townhomes are those with 3 bedrooms, 1.5 to 3 baths and with living area from 1,250 sq ft to 1,600 sq ft. These homes are that are in demand are generally priced from $350,000 to $500,000.

5740-garrison.jpgDetached homes in demand are those with 4 or more bedrooms, 2 to 3 bath, with 2,000 to 2,600 sq ft and preferably come with double garages. The selling prices for these homes are in the $600,000 to $700,000 price range.

More affordable prices

Compared to the peak price level at the beginning of 2008, home prices had declined between 12% to 15%. A home that sold in early 2008 at $722,000, could be bought at around $650,000 today. This is a big price decline, and home owners are now more comfortable to enter the market and actively look for such homes.

Lower mortgage rates, a big booster!

Here is a quick observation to illustrate the point:

If your were buying a single family home in early 2008 at the $650,000 price at a 5 year rate of 5.50%, with 5% down, add CMHC and 35 year amortization, your monthly payment would be around 3,395.00. The gross family income to qualify for the loan would be close to $110,000.

Now buy a house today, at an the same $650,000 (which probably selling at $722,000 a year ago), 5 year rate at 3.75%, with 5% down, add CMHC fees, 35 year amortization and your monthly payment would be $2,715.00. The saving is around $680 a month in mortgage payment! The lower mortgage rate also allow more buyers to be able to afford to buy the above home. The income required to support the above purchase with 95% financing is around $90,000.

My take on the housing market

The above market segment for affordable homes are driven by growing families who need more space and homes that are close to schools. The demand for these homes will remain strong, and prices may remain at current level or even increase a little.

First time buyers will remain active in the 1 bedroom and 2 bedroom condo market. Newer 1 bedroom condos that are priced in the $250,000 to $280,000 range will be in demand. As for the newer 2 bedroom condos, those priced around $300,000 to $365,000 are selling fast.

Million dollar homes will take a longer time to sell as the number of buyers in this market segment is not as large. A recent analysis done on the sales activities for million dollar homes in Richmond showed that at 8.7 months supply, it was still a buyer’s market for these homes.

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