A key characteristic of the post-recession housing market has been the divergent housing strength between the Lower Mainland and most other areas of the province. While the Lower Mainland-Southwest and, to a lesser extent, the Capital region had shown relatively stronger post-recession sales activity, most other regions remained at recessionary levels. The impact of low interest rates was more beneﬁ cial for real estate markets in larger, diversiﬁ ed economies with a higher proportion of local area buyers. In addition, employment growth was generally weaker outside of the Metro Vancouver region.
On overvaluation in the Lower Mainland:
It has become fashionable to suggest that price levels in Lower Mainland-Southwest region of the province, and particularly Greater Vancouver, are set to correct substantially due to the signiﬁcant price gains in recent years and a de-linking of home prices relative to income and rental rates. Central 1 does not subscribe to this view, but does expect price gains to slow considerably over the forecast horizon. While price levels may turn lower in the near term, the annual Lower Mainland-Southwest median resale price level in 2012 is forecast to surpass 2011 by 1.4% to reach $497,000. A further gain of 3.6% is forecast in 2013 Central 1 deems a signiﬁcant price correction in the Lower Mainland-Southwest to be unlikely for various reasons. First, much of the price growth in the region has been attributed to disproportionately strong demand for higher priced single-detached product in localized regions such as the west side of the City of Vancouver and Richmond. In contrast, price gains have been less substantial in other markets and product types, meaning this has not been a region-wide price surge. Moving forward, demand will likely remain stable as economic growth, albeit slow, persists and mortgage rates remain low.In addition, speculative demand in the region remains low. The proportion of units re-sold within six months of purchase can be used a proxy for speculative activity. In theory, speculators look to gain through capital appreciation over a shorter time-frame relative to home-owner occupiers. In a period of higher speculation, which is generated by strong market activity and price gains, this proxy generally rises. However, this metric has exhibited a declining trend since early 2008, currently hovers near 2% and operates near normal levels. In contrast, this proxy surpassed 10% in the late 1980s, and was closer to 6% in 2006 when markets were overheated. The lack of excessive speculation suggests that we are unlikely to see a speculation-induced bust in pricing.Meanwhile, price levels will be further supported by supply-side adjustments. Sales activity and the ﬂow of new listings are positively correlated – when demand increases, new listings tend to follow in the months that follow. The opposite is also true. This reﬂects the tendency of sellers to capitalize on strong markets and rising prices, and sit tight when market conditions weaken. In the absence of any major shock in the economy such as a large and unexpected increase in interest rates or another recession, Central 1 expects the recent slowdown in demand to be met by declining listings activity, which will mitigate growth in standing inventory of resale product.
On population growth:
Weak population growth through 2013 will be a limiting factor for housing over the forecast horizon. The provincial population is forecast to expand at a lackluster rate of 1.1% this year, and fare only slightly better in 2012 and 2013 with 1.2% growth. The slow pace of growth will reﬂect a drop in the number of landed immigrants to B.C. from international markets this year and increased net outﬂow of residents to other provinces, primarily Alberta, in 2012 and 2013. This interprovincial net outﬂow reﬂects the stronger rebound in Alberta’s economy and improved labour market conditions.
On interest rates:
Mortgage rates will remain low and edge up beginning in the latter half of 2012 and through the remainder of the forecast horizon. This reﬂects a compression of bond yields, which have recently declined sharply in the U.S., Canada, and Germany during the latest round of market concerns and volatility. The U.S. central bank has stated that it expects no rate increase until mid-2013 and only then if conditions warrant.
I do not necessarily endorse this view in full; nonetheless the data presented are worthy of review. Personally I would give greater weight to price-rent ratios but to each his own. House purchases come with obligations lasting longer than to 2013. Place your bets.