How much will prices fall?

This question is the essential question for all those waiting to buy real estate due to the fact it is over-priced and offers no value over renting right now in the Vancouver area. For a value oriented individual, no premium should be paid to own versus rent.

For comparison purposes I have selected two typical 'first time buyer' residences in the Lower Mainland to determine what I consider to be a “fair market value” for these homes.

Methodology:
I am comparing the monthly cash outflow for buying versus renting, with renting representing the fair market value of the monthly cost of the housing in question. Sources for data are the Multiple Listing Service for local asking prices and Craigslist for local asking rents. I have tried my best to find units that are as similar as possible.

Mohican's fair market value is based on the fundamental price of the housing (rent) minus any extra owner incurred costs plus any principal paydown

Assumptions:
- 100% financing
- 6% fixed five year mortgage rate with 40 year amortization
- Inclusion of maintenance fees and property taxes

1) Our first candidate is MLS # V673124 in the Central Park area of Burnaby. It is a two bedroom, 1 bath condominium. Maintenance fees and property taxes are approximately $400 / month. I assume the purchase price to be the asking price at $309,000. In this scenario a buyer would have monthly cash expenses of $2,084 = ($1,684 + $400with only $158 of principal pay-down for a total net cost of $1,926 / month. For comparison I found a comparable unit for rent in the same neighborhood, with the same features for $1200 / month for a net savings to the renter of $726 / month. Based on these numbers the mohican fair market value of this condominium is $183,456. This represents a 41% decrease from the current day asking price.

2) Our next candidate is MLS# F2730243 is a 3 bedroom, 3 bathroom townhouse in the quickly growing Clayton area of Surrey. This townhouse has an asking price of $334,900 and maintenance fees and property taxes are approximately $350 per month. In this scenario a buyer would have monthly expenses of $2,175 = ($1,825 + $350) of which only $172 is principal paydown. This gives us a total net cost of $2,003 per month. I found a comparible unit for rent in the same complex for $1600 / month. This gives the renter a monthly net savings of $403. Based on these numbers the mohican fair market value of this townhouse is $266,012. This represents a 21% decrease from the current day asking price.

What do you think? What would you be willing to pay for these places? Do you think prices will fall by the amount stated and when?