Wednesday, March 02, 2011

Bifurcation of the BC Real Estate Market

No, bifurcation isn't a an intestinal disorder although it could cause some consternation (not constipation) among some observers who expect uniform behaviour across various real estate markets.

Based on market behaviour since the 'flash crash' of 2008/2009, we could draw a clear line between the urban market of Greater Vancouver and the rest of the province. The City of Vancouver and its immediate suburbs have witnessed a frenetic pace of home buying activity and consequent price rises.

This is in a pretty marked contrast to the real estate markets of the Fraser Valley, Vancouver Island, and the rest of BC. While prices have risen substantially in the area covered by the REBGV this past year, they have fallen or remained relatively flat in many markets including the Fraser Valley, Chilliwack, Okanagan, Northern Interior, etc. thus bifurcation.


Quite simply, I think it just comes down to supply and demand. The Greater Vancouver real estate market has inelastic supply and demand that is relatively stable. When the market is hot, supply becomes even more constrained as holders of real estate hang on for further gains rather than listing. Demand is increased as potential buyers feel like they are 'getting left behind' and the ratios of supply and demand drive prices higher. This, of course, can work in reverse, which is what we witnessed during the 'flash crash' of 2008/2009 and I expect we will witness a rather severe and perhaps more prolonged version again soon.

What do you think? When might this happen?

Note: The Landcor 2010 Report paints the same picture:


Etienne de Cochon said...

It appears that real estate prices have decoupled from economic indicators such as incomes and debt load in Vancouver. While GDP growth in BC is lagging behind the rest of Canada, the real estate market continues to rise in value. Even rates of unemployment in this province has no impact. The only economic indicator that seems to correlate is the meteoric rise of the Chinese GDP. It is a tenuous link indeed, but in the absence of any other indicators that make sense, how wrong would I be in saying that we probably won't see a slow down in the real estate market in Vancouver until the Chinese economy cools off?

jesse said...

I don't think there is any "decoupling" going on, simply there are people who are, by definition, willing and able to buy. The average looks high... just saying.

What I suspect is that a dearth of FTBs would significantly cool sales and such an effect would start showing up around April.

For now, enjoy the show! In the end, this time it's not different, but the ride is something truly special.

JimTan said...


mohican said...

The Landcor report paints the same picture.