Will Metro Vancouver?s record property prices continue to soar into the stratosphere, or are they headed for a crash?
Derrick Penner
The Vancouver Sun
If recent history is a guide, homeowners and buyers can expect — within the next year — some sort of rebalancing in the market with respect to price increases, according to an analysis by the Real Estate Association of B.C.
While not forecasting any kind of crash or popping of a bubble, association economists tracked the rate at which prices have risen and fallen since the last big crash in 1981 and found that each steep run-up has been followed by a fallback to more of a moderate long-term average.
“This is not a forecast,” BCREA chief economist Cameron Muir stressed. “This is what has happened historically, and it gives you an idea (what might happen) from previous cycles.”
And over seven cycles since 1981, Muir and his team counted 46 months where the year-over-year increase in prices was steeper than 20 per cent.
The rebalance: Sharply rising interest rates and a subsequent Canadian recession, saw prices fall by October of 1990.
The run-up: Home prices rose steadily in 1994 to top out at a 23 per cent year-over-year rate of increase in February, 1995, during a boom period marked by strong immigration from Hong Kong ahead of its handover to China.
The rebalance: Prices started to decline within 12 months as the economy soured, the spectre of the developing leaky condo crisis loomed, and an exodus of population migration out of the province squelched housing demand.
The run-up: The economic rebound saw prices pick up speed in the early 2000s after a long period in the doldrums, with price increases topping 20 per cent, year-over-year, for six months in 2006.
The rebalance: Prices kept rising until the global financial crisis early in 2008, then fell until early 2009 during the ensuing recession.
The run-up: In the post-recession recovery, Metro Vancouver homebuyers sparked a steep increase in prices for increasingly scarce single-family homes, which topped 20 per cent. (Condominium prices, however, remained stagnant.)
The rebalance: The federal government imposed stricter rules to qualify for mortgage insurance, including reducing the maximum mortgage amortization period to 30 years (then to 25 years in 2012) from 40, which curbed demand and saw prices fall until early 2012.
The run-up: A frenzied Metro Vancouver housing market saw prices shoot up into the 20 per cent range at the start of 2016, with prices for single-family homes in particular approaching 30 per cent in some communities.
The rebalance: With buyers squeezed, Muir said the year-over-year pace of price increases eased back to 16.5 per cent by May.
“We’re looking at pricing data historically and modelling it in the sense of what (happened) in the past,” Muir said. “It’s illustrative of what we can maybe expect going forward, all things being equal.”
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