Vancouver price rise is too far, too fast
Province
Greater Vancouver’s housing market has stormed back to life but is getting way ahead of itself, a new report by TD Economics warns.
Resurgent prices in the Lower Mainland have risen too far, too fast and are headed for a fall in 2011, TD said in a report released Wednesday.
The average value of existing homes in the region plunged by one-third from $658,000 to $436,000 between October 2008 and April 2009, the bank said.
But this correction, needed to better align prices with personal disposable income, didn’t last long.
“This retracement of a needed adjustment is most likely too much, too fast,” the bank said.
“The current sales rally will probably wane in the months ahead.”
Resale house prices, which lag tightening and slackening market conditions by a few months, won’t likely take a sustained dip in the short term, the bank said.
August sales, after all, were more than triple their January low and were the second highest on record.
“As a result, the current momentum will be enough to restrain the annual price drop to around three per cent this year,” it said.
The report added: “While monthly prices will continue to be choppy heading into next year, the base effect should provide an annual price gain of 2.6 per cent next year.”
But the price party will be over in 2011.
Prices in the region will drop by 1.7 per cent that year as supply expands and demand weakens in delayed response to worsening affordability, the report said.
Vancouver will be the only one of nine big Canadian markets where house prices will drop in 2011, the report said.
At the moment, housing affordability in the area rests solely on low interest rates, as incomes are not yet growing substantially, TD said.
And interest rates will begin to reverse course later in 2010, depressing sales, it said.
Even before interest rates rise significantly, however, cooling demand and rising supply in Greater Vancouver will act as a relief valve, the report predicted.
Nationwide, after plunging by nearly one-third in the second half of last year, Canadian housing sales rebounded by 61 per cent as of August — barrelling past pre-recession levels to approach volumes last seen in 2007.
Strong direction from Canada’s central bank, which has kept interest rates low, and a sharp improvement in consumer confidence help explain the resilience of the housing market — as does “pent-up demand,” TD said.
Once the dust from the economic downturn had settled, the report said, people who had only held off buying a home because of uncertainty about their own financial situation found themselves in an excellent position to take the leap. Housing prices had come down and mortgages were available at “rock-bottom” rates.
© Copyright (c) The Province
