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Forecasting is all well and good, until something changes...

Blog by Robert Matthews | March 2nd, 2015

As a wise sage once said, "predictions are difficult, particularly about the future." Or, to put it another way, "forecasting is all well and good, until something changes."

We all want to know, absolutely, what the future holds. What is the probability of a particular event or trend or result occurring, or not occurring? How can we be sure the forecasters are correct? Regardless of the quality of the forecaster's skills and models and input factors, we just cannot accurately predict with certainty. Who would have thought one year ago that the Canadian dollar would be at .75 U.S. and oil prices would be $45 / barrel? Think of how these two events have affected some parts of Alberta. Thousands of people must leave and go elsewhere for jobs. And who will buy their homes? No doubt there'll be more of these "black swan" events that bring large, unpredicted and high impact changes.

Due to geography, climate, lifestyle, politics and policies the Greater Vancouver area is a go-to destination for people – and money – from throughout the world. And of course, with greater demand for housing comes higher prices. As Ozzie Jurock likes to say, “Values grow where people go”. The Vancouver west side and West Vancouver have been the primary recipient of this great wealth inflow for the past several years, but it's really affected all areas of Metro Vancouver. A local home buyer priced out of one area will move on to the next most desirable area, and so on, with the subsequent rise in demand raising home values across the region. The price of a home in Chilliwack is affected by what's been happening on Vancouver's west side.

We may think our relatively high property values are immune from the effects of change. But are they? How would local buyers be affected if the historically low interest rates were to double? Will rates stay at the current low point for the next 10, 15, 20 years? Odds are, no. But the probability of when and how much they might change, well, that's the question. Will some other type of unpredicted event occur that may decrease demand for Vancouver area homes? Predictions are difficult, particularly about the future. The only constant is change.

This never-ending change and inability to predict "black swan" events has implications for the value of real estate in Metro Vancouver – which for many of us is our largest financial investment. What does this mean for those thinking of buying today? I tell my clients to consider the desirability of your potential new home to the next owner. Identify the factors of your potential home that will have sustainable and obvious desirability to future buyers. A relatively more desirable and in-demand home – at any price point – will tend to keep its value better in times of downturns. Conversely, ensure you've identified those factors that may make the home less desirable compared to similar homes (the "competition"). If you find yourself making too many compromises – say, an odd layout, or a lot of traffic noise – consider alternatives – a smaller home? a different neighbourhood? – before you sacrifice desirability.

The above is an excerpt from my Feburary newsletter. Feel free to email or call me at 604-328-9006 anytime if you'd like to continue the conversation, or if you'd like to receive my monthly newsletter.