But price increases can’t go on forever, economist warns
Ashley Ford
Province
CREDIT: Wayne Leidenfrost, The Province Vancouver market is ‘unique,’ says Phillips Hager & North’s Patricia Croft.
The Lower Mainland may have the highest and wackiest house prices in the land but it is not in a housing bubble for now, the chief economist of Vancouver-based Phillips, Hager and North said yesterday.
Patricia Croft told the Vancouver Board of Trade there are some risks with high prices, but a market correction is “difficult to predict. If you are waiting for a correction, don’t hold your breath.
“But, price increases cannot go on forever,” she warned.
She said housing cycles can go on longer than expected or predicted and while prices here are out of line with the rest of Canada — a bubble-risk indicator –Vancouver enjoys a unique situation that, so far, is keeping the market out of danger.
“Greater Vancouver’s market is at most risk in Canada of seeing a bubble, but it is also a unique market. It is very attractive, there is limited land, and people want to come here.”
Beyond that, there’s strength in the B.C. economy, its employment and its fiscal position.
There’s also an Asian connection to provide further economic strength and the upcoming Olympics to at least give it a temporary bump, Croft said.
She said affordability, another indicator of a bubble market, is still good here. “As long as affordability goes on, the Greater Vancouver market will be fine. When that changes that increases the alarms,” she said.
She said a further plus is there is little speculation going on in the Lower Mainland market.
But she said the Canadian consumer has become real-estate reliant and 60 per cent of mortgages were renegotiated in the last two years. Croft said one in four mortgages renegotiated increased borrowing by an average $30,000 and fully half of Canadian mortgages were financed with down payments of less than 10 per cent last year.
But, only one in four mortgages were negotiated with variable rates and so would not be immediately vulnerable to increasing interest rates, which are on the way, she said. Rising interest rates normally end housing up-cycles, so each incremental rise brings with it increased risk, she said.
Croft was less enthusiastic about the U.S. market. It “is exhibiting signs of a widespread bubble. The Canadian market for now is not.”
She said some U.S. markets are based on the number of hours a house is on the market, not the number of days. People are camping out to be first bidders on new developments. In hot markets, such as California, 60 per cent of mortgages are at adjustable rates, while in Las Vegas 70 per cent of purchases were financed through interest-only loans.
But the U.S. is not the only vulnerable housing market. Prices have also soared in China, The Netherlands, the U.K. and Australia, she added.
© The Vancouver Province 2005
