Source: Credit Union Central of B.C. VANCOUVER SUN

B.C.’s hot housing market has cooled more quickly than expected, which should hold sales, housing starts and the Lower Mainland’s average prices below 2004’s torrid highs throughout 2005, Credit Union Central of B.C. said Thursday.

Credit Union Central chief economist Helmut Pastrick said with October property sales in the Lower Mainland down 30 per cent from the March peak, he believes the market is going through an adjustment, but not an outright correction.

“The amount of new [housing] supply that’s coming on: new listings, newly constructed product, probably hasn’t surged as much,” Pastrick said.

“It’s more of a decline in those monthly sales numbers that are responsible for the market downshift.”

Pastrick adjusted his expectation for total property sales in the province down to 96,000 from the 102,600 estimate he made in June.

He is also projecting that 2005 sales will reach 94,800 and that 2005 housing starts will hit 31,600, which is slightly below the 32,400 units expected to be built in 2004.

Pastrick has also estimated that the average price for a house in B.C. will creep up to $289,700 in 2005 from $286,200, although he expects Vancouver’s average 2005 price to slip to $370,000 from $375,000 and the Fraser Valley’s average to slide to $285,000 from $290,000.

B.C.’s real estate market will still perform well, he added.

It will just “be more of a sideways market, if you will.”

Tsur Somerville, director of the centre for urban economics and real estate at the University of B.C.’s Sauder School of Business, said the dampening of the market also reflects growing uncertainty in the economy.

He said economic stories in recent weeks have been more negative than positive.

The rising dollar has made it more expensive for American investors to pour money into buying condominiums in downtown Vancouver.

The dollar, which dropped 0.75 of a cent to 83.73 cents US Thursday, also hurts B.C.’s export industries such as forestry, mining and tourism.

“When we’re talking about commodities, forestry and tourism, that’s a big piece [of the economy],” Somerville said.

“Growth in the underlying economy is not as strong as people have forecast it to be and that has implications for real estate,” he said.

“When you enter a period of uncertainty, you’re going to see fewer transactions and fewer starts.”

However, Gordon Maroney, president of the B.C. Real Estate Association, said he still believes underlying confidence in the province’s real estate market is strong.

He said the market decline that started after its May peak was predictable.

In 2004 rising consumer confidence met falling mortgage rates while there was still pent-up demand for housing following several years when the real estate industry was in the doldrums.

“So we had a huge surge of purchasers who wanted to buy starting last July to the end of May this year,” Maroney said.

“We’ve said for months…that the market could not continue.”

Carol Frketich, regional economist for Canada Mortgage and Housing, said the high dollar and uncertainty over exports will dampen growth, but only by a matter of degree.

She said that instead of seeing 20-per-cent growth in housing starts, as there was in 2004, she expects to see two-per-cent growth.

And the factors that drove the real estate boom — low mortgage rates, rising employment, consumer confidence and in-migration — will continue into 2005.

“I’m saying the fundamentals are still there for growth,” Frketich said.

Pastrick said he expects housing starts to dip slightly in 2005 because so many condominium projects were started in 2004 to beat increased development charges by the City of Vancouver.

“That borrowed from the future,” he said.

Pastrick said the affordability of B.C. housing did decline in 2004, but not to a level that can be associated with previous market turnarounds.

He also does not believe that the current softening of the market raises concerns that housing prices have become a bubble about to pop.

Pastrick points to the level of real estate speculation — flipping properties after owning them less than six months. He said data showed that in October only four per cent of sales were properties held less than six months.

That compares with 10 per cent in 1989 — 1990 and 20 per cent in 1980 –1981.

In his housing forecast, Pastrick predicted the rental vacancy rate will decline due to the slowdown in the real estate sales market. Renters will simply stay put.

He added that net migration to the province will also add to rental demand.

In his forecast, Pastrick noted that markets such as Kamloops, the Kootenays, Powell River and South Okanagan have not seen sales fall over the last six months.

Still, he predicts all markets except the Okanagan, South Okanagan, the northeast and Chilliwack to show slight declines.

Pastrick said if 2005 provincial economic growth exceeds his estimate of three per cent and the Bank of Canada cuts its key lending rate — which will hold mortgage rates down — he concedes real estate sales could rocket up again.

Pastrick said a rise in mortgage rates from April to June triggered the sales decline.

Mortgage rates have dipped again and he expects November real estate sales figures will show the market has “firmed up.”

“If not [November], then December and January,” he added.

© The Vancouver Sun 2004