It is too soon to signal the end of British Columbia‘s housing boom, economists say.

Escalating prices and rising interest rates suggest residential construction will make less of a contribution to economic growth than in the past few years, but it won’t be weak, says economist Craig Wright of RBC Financial Group.

“We are looking for the housing market to soften across Canada, but we are not looking for it to crash,” Wright said Tuesday.

Despite the outlook for higher interest rates, some lenders are dropping fixed-term mortgage rates by an average of 0.15 of a percentage point today in response to declining yields in the bond market where they borrow their money.

“I think that is indicative that rates are not going to get out of hand here in the next year or two,” said Helmut Pastrick, chief economist at the Credit Union Central of B.C.

While RBC Financial Group expects the prime rate to rise by two full percentage points between now and the end of 2005, Pastrick anticipates about half that.

He sees further gains in B.C.’s housing market next year and no major correction in sight thanks to economic growth, which is expected to lead the country, and a “relatively large” pool of potential first-time buyers.

In its financial outlook released Tuesday, RBC says rising rental vacancy rates, along with declining population growth rates in the 25-39 age group, point to diminishing influence on the housing market from first-time buyers.

“Slower demand will lead to less construction but, without the excess supply glut seen in the late 1980s, a relatively balanced market is expected during the next few years.”

Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association, says there are no signs to date that higher prices and higher borrowing costs are hurting new home sales.

“There are a lot of new projects coming on stream in the suburbs, and sales of new single-family homes are still very, very strong in all areas of the Lower Mainland, with no indication of softer prices,” he said.

“Interest rates are still at historic lows and we’re still benefiting from huge pent-up demand from first-time buyers.”

Simpson added that figures due to be released by Canada Mortgage and Housing Corp. on Friday are expected to show housing starts in the Greater Vancouver region were up in June, compared to the same month last year, and are also up for the first six months of the year, compared to last year.

© The Vancouver Sun 2004