Vancouver House Pricing Collapse in 2013?
As 2013 is nearly upon us, we are left to reflect on the previous 12 months of property prices, stories and news headlines. While there can be no debate that the last quarter of 2012 was much slower in terms of number of sales when compared to the first half of the year, we are left to predict what is coming in the next 12 months.
From the last few sales we have completed, we have noticed that many buyers are prepared to wait until they can secure a great deal, in addition sellers are prepared to wait, with some taking their homes off the market, rather than accept a reduced price.
If we look at the 10 year average for the number of sales in Metro Vancouver, typically 88,000 units change hands every year. If we extend that to a 15 year average, then numbers fall slightly to 79,000 per year. So far in 2012 we have seen around 64,000 sales, which could increase to a total of 68,000 by the end of the year.
In addition to the the number of sales being lower, we are seeing a decline in the number of new listings coming online.
“That’s consistent with sellers saying, ‘It’s not a good time to sell, I’m not selling if I don’t have to,’” said Tsur Somerville, director of the centre for urban economics and real estate, Sauder School of Business at the University of B.C.
Somerville describes the current market at “tentative” and cites concerns about the global economy as one possible cause:
“My general sense is that it’s hard to see where a market turnaround is going to come from in the short run until there is more confidence and clarity about the American economy,” Somerville said. “Even without the fiscal cliff, the American recovery is very slow. Given the state of things in Europe and China, you’re not looking at any dramatic economic growth that’s going to pull the Canadian economy along. Part of the story is for the housing market to pick up, there has to be more juice to the economy.”
Prospective buyers who are expecting huge market declines, might be disappointed. In order for prices to drop sharply we would need a larger economic even to take place, such as severe overbuilding of homes, as was seen in Spain in the past few years. Or some financial disruption, or a sharp movement with regards to interest rates.
With the limited supply of land here in Great Vancouver, the prospect of overbuilding is difficult. Somerville does cite a slight increase in condo starts, but cautions that they are nowhere near the levels we saw at the peak. He also mentions the yield curve for interest rates is very flat, so we are not expecting a sharp rise in rates.
Chief economist for the BC Real Estate Association, Cameron Muir was also weighing in on the current market, he believes that if buyers are waiting for prices to crash, they maybe waiting for quite some time.
“Three years ago we saw the largest financial crisis since the Great Depression and an ensuing global recession. If that’s wasn’t enough to trigger a correction in an asset bubble, I don’t know what is,” Muir said.
He mentions the price declines that some pundits are calling for – those of 25-40% and suggests that in order to see a price decline such as this, we would need to see a household disaster writ large, such as that seen in the US.
In the early 1980’s we did see a sharp decline in house prices, but this was a result of interest rates being raised sharply – around 10 percentage points within a year.
“In 1982, the five-year posted mortgage rate was, I believe, 21.5 per cent at its peak. You can imagine what that does to a housing market,” Muir said. “Housing prices fell dramatically — they fell 40 per cent in some markets.
While he does agree that the fiscal cliff would shave most of the growth off the Canadian economy, but remain confident that lawmakers in the US will come to an agreement and find a compromise in order for the US to avoid being thrown into recession.
Muir predicts an increased level of homebuying activity in 2013 from that of the last few months, a level that is more reflective of overall economic conditions.
Overall home sales are expected to trend toward their long-term averages,” Muir said, adding that pent-up demand could contributed to increased sales activity in 2013