Price correction expected in future, but Vancouver will remain pricey
Lena S
Province
Tsur Somerville is the director of the University of B.C. Centre for Urban Economics and Real Estate
There’s the prediction, or hope, among those who have given up on today’s housing market that prices will fall dramatically after the 2010 Olympics.
Recent news reports have already reported there’s been a slight chill in the B.C. real-estate market this year.
But a TD Bank report released in April also said the risk of a real-estate collapse is low in B.C.
Tsur Somerville, a University of B.C. professor who has been studying the rise and fall of housing prices in Vancouver from 1979 to the present, says he expects a price correction in the near future.
But the question for so many is: Will it be enough?
“With housing markets, it doesn’t have to be that a correction happens by prices dropping and magically being affordable,” says Somerville. “They can work by things growing flat or very slowly for an extended period until population and incomes catch up.”
Prices can also decline mildly before rising again, which is what happened in Vancouver between 1994 and 2001.
History has shown that the longest period of sustained house- price increases in Vancouver lasted for about five years. The current boom, which began in 2002, is reaching seven years and many question if we’re in a housing bubble that’s about to burst.
Somerville says he’s reluctant to use the B-word because the numbers are not adding up to such a scenario.
“If you say bubble, then at some point it’s going to pop. And if you look at our price increases, they’ve been double-digit, but for the most part they’ve been between 11 to 15 per cent for the past few years. That’s high, but in a bubble you start to see 20-per-cent growth, 30-per-cent growth. Just really rapid acceleration, and we haven’t seen that. That’s what happened in 1981 and 1982 . . . That’s what a bubble looks like.”
Helmut Pastrick, the chief economist for Credit Union Central of B.C., concurs with Somerville.
He suspects the Vancouver market is now in the beginning stages of a cooldown. Pastrick is predicting modest price increases for the next two years and potentially small declines after 2010.
“If you’re holding off because ‘Why should I buy now if it’s going to drop 20 per cent next year?’ I think that’s a bit of a gamble. A person’s well within their right to do that, obviously, but just bear in mind the general view is there will still be a price increase this year and another next year,” says Pastrick.
Pastrick says he is not expecting the conditions — an economic recession or a sharp rise in interest rates — that would generate a substantial price drop to materialize.
“And at this point, the general view is the Canadian economy and U.S. economy will be growing at a faster pace next year,” he says.
Somerville says the other scenario that could lead to big price drops is an oversupply of housing — achieved if droves of people dump their homes on the market, which he doesn’t expect will happen.
There’s only one certainty Somerville is willing to bank on: “The only thing that’s not temporary is that Vancouver‘s going to be expensive. You have to start from that point — then it’s a question of is it ‘normal expensive’ or not?”
© The Vancouver Province 2008
