Two friends of mine, a couple, bought a condo in New Westminster in 2016 for about $450,000.
It's their first property and they love the place. It's a two-bedroom with two baths, it has a beautiful view and a balcony, and it has room for their cat. At the moment in their lives, the place is perfect for them.
The property value of their condo went up to $520,000 by the beginning of 2018. My friends were pleased; they patted themselves on the back for getting into the market. They felt like they made a good investment.
But the property value dropped in 2019, and now their property is assessed at $445,000 — $5,000 less than what they bought it for. They've begun second-guessing their investment.
A lot of people may be in that position this year.
We all know that housing in Metro Vancouver has become increasingly unaffordable, especially for young people. The provincial government took action a few years ago, taxing foreign investment in the housing market and also domestic speculation (basically, owning homes solely for investments). They are trying to make it so that the lower mainland remains affordable for residents.
Those actions have now begun to have an effect. Property values in Vancouver dropped 11% since July 2019, as well as in Burnaby, Port Moody, the City of North Vancouver and Coquitlam. They dropped 14% in Richmond and 16% in West Van.
While this is good news for those trying to get into the market, it may not be as good news for people like my friends who have bought recently. Anybody that bought a property in the last year or two is likely to see a property value lower than what they paid.
So should these people be worried? Did they make a bad investment decision?
Probably not. Here's why.
Property value is not the same as price.
This has been said before, but it's worth saying again: a property value assessment is not the same thing as the price someone is willing to pay for your home.
The most common property assessment in British Columbia occurs through BC Assessment. They basically take a bunch of factors about the property (its location, its age, its size, the number of rooms, the quality of construction) and then put those factors into a formula that also accounts for housing market variables. That gives you your assessed property value.
But what people want to buy may be considerably different than those things. Buyers have a number of price considerations beyond the location and quality of construction.
Buyers care about whether the property is aesthetically pleasing, whether they can see their kids growing up in the neighbourhood, whether there is a place to park their car. They care about the kitchen layout. They sometimes even care about whether the counters are granite.
Consider the common advice to bake a loaf of bread before a potential buyer views your place. It suggests that even smells influence (to some extent) whether a buyer could be interested in the property.
All that to say: the assessed property value of my friend's condo may have dropped below the 450,000 they originally paid for it, but that doesn't mean they can't sell it for a higher price. If a buyer likes their place, they may even be willing to pay significantly more.
Property is a long-term investment.
But here's the main reason my friend shouldn't worry: they're not looking to sell in this market.
Sure, home values are down this year. But my friends won't be looking to sell for another 4 or 5 years. Maybe longer than that. What matters is the market in the future.
It's hard to predict what the market will be in the future. Some factors suggest that prices could go down for a while. Indeed, that's what the goal of government policy is at the moment: they're trying to reduce prices. And, markets tend to go up and down. For the past two decades, housing prices have been going up... it could be about time that they start coming back down. For those reasons, it could be that the market will continue to cool a little for the next few years.
But it's likely housing prices will continue to be high, and perhaps even increase, for at least the next few years. The Canada Mortgage and Housing Corp (CMHC) predicts that they will increase over the next few years. Partly, this will be because of continued population growth in the region.
So while the market is down slightly this year, my friends shouldn't worry. Markets do go up and down. Just because it's down this year, doesn't mean it will be in 5 years when they want to sell. Indeed, many predict that prices will go up.
A house is not just an investment — it's also a home.
The other thing my friends should remember is that their condo is not just an investment. It's also their home. Homes are different than, say, stocks. The only value stocks have is what they are worth — what someone else will pay for them.
But homes are different; they provide a ton of value beyond what someone would pay for them.
My friends love their home. It has given them a safe place to live for several years. It's close to the sky train and provides a convenient commute to work. It's big enough to host events and parties, which is important to them. They have a second bedroom, so they can have guests stay with them. They're also building their own equity rather than losing money paying rent. All these factors contribute to the value of their place to them.
The assessed property value may be down this year, but that only matters when they are trying to sell. As a living space, the place provides just as much value to them this year as it did last year.
In other words, in their calculation about whether the purchase was a good investment, they should not only consider what they paid and what they might be able to sell for. They should also consider the years of a great living environment that they get out of it.
The place has been great for them, and will likely be a great living space for the next few years. It wasn't a bad investment.
Conclusion: don't worry.
Yes, the market fell a bit in 2019. Yes, that means the assessed value of your home may have dropped. If you bought recently, it may have even dropped below what you paid. But don't worry — the market will likely rebound and property values will rise again.
In the meantime, take a moment to enjoy your place for the home that it is.
Ramsay Lewis is a writer and analyst. He writes for Crisp Text.