The Good News and the Bad News in Vancouver Real Estate
The day started off with some pretty good new in my inbox with an email from RBC letting me know that housing starts were up in August. As I have mentioned before I don't think monthly housing starts are too useful anyways, but up is always better news than down, well not always, but in this case...
As we all know the Vancouver real estate news is mostly pretty dismal these days. And dismal is what came to me this afternoon with the study done out at UBC about the state of urban real estate values in Canadian urban centres. They state that they are overvalued and the media loves this stuff, even more than the loved the upswing. I wonder if they sell more papers (although maybe less advertsing) on the way down.
In this study by University of British Columbia professor Tsur Somerville entitled "Are Canadian Housing Markets Overpriced?" looks at urban markets across and what I found most interesting was that they find in Halifax, Montreal, Ottawa, Regina and Winnipeg are more overvalued than Vancouver.
To analyze whether housing prices are overvalued, the researchers looked at current house prices in nine major Canadian cities. They compared these prices to their own calculation of what a balanced market price should be, derived from the relationship between house prices, rents and the cost of investing in housing in each market.(cbc)
They found that in Halifax, Montreal, Ottawa, Regina prices would have to drop by 20 % to be in "balance" with rents while in Vancouver only a 11% decline would bring us into balance. I don't find the whole thing terrible insightful as it looks at the market with such narrow criteria. There is just so much more to real estate than the relationship to rents. I am not saying it is wrong that prices will fall, they will, and Sommerville's statements in the Vancouver Sun article are quite insightful in realizing that exactly how the market will correct is hard to predict.
And what eventually happens in the Vancouver market, Somerville said, will depend on a host of variables ranging from changes in mortgage rates to changes in the long-term average appreciation of housing prices and economic conditions.
"What you can identify is where the pressures are," Somerville added. "How the market plays out is very different."
Prices do not have to fall for the market to correct, Somerville said. Prices can simply stagnate over a period of time, like Vancouver experienced through the mid-1990s until 2001.
However, Somerville added that Vancouver has built new homes at a much higher rate than household formation in the city during the up-cycle, and the inventory of unsold homes in the market has ballooned rapidly, which make Vancouver more susceptible to price declines.
"Those are two big warning signs," he said.
Somerville said another unknown in the declining market is what the buyers of pre-sale condominiums that are now under construction will do once the units are complete.
If a significant number of investor-buyers of those condominiums decide to sell them right away, that would put more downward pressure on prices.
Well there we have it, that is todays bad news about Vancouver real estate. What is your experience? Are you looking to buy right now, or thinking about selling? Your comments are always welcome.
Matthew Collinge: Vancouver REALTOR®
