REAL ESTATE

Vancouver's 'bubblicious' housing market ready to pop?

Despite softening, don't expect same kind of price collapse seen in US

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 21, 2012

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Despite softening, don't expect same kind of price collapse seen in US

Steve Bergsman
Inman News®

Canadians don't like to use the word "bubble" when referring to their national housing market. But except for a brief 12 months during the heart of the global recession, it's been on a wicked tear since the 1990s.

In Vancouver, which is the most costly metro market in Canada, the recession deflated home prices about 15 percent in 2008, then corrected for that 15 percent over the next 18 months.

In fact, if you bought a home in the Vancouver area back in 2005, you would have experienced 65 percent equity growth in that property since then.

Compare that to hard-hit areas in the United States where home prices have fallen to 2005 levels and beyond -- and remain there.

I've interviewed Bryan Yu, an economist with Central 1 Credit Union in Vancouver, for this column in the past. Like most economists he takes a data-rich viewpoint of what has happened to the Canadian housing market and he emphatically asserts, "Our view is that there wasn't a bubble in Canadian housing."

So, in a nod to the Canadians, I'll just say this, that country's housing market has simply been bubblicious.

Or, it was until recently.

To quote Bob Dylan, "Something is happening here, but you don't know what it is, do you, Mister Jones?"

That something is an unexpectedly prolonged slowdown in Vancouver housing sales, which has caused housing prices to recede slightly -- a very rare occurrence.

At this point, Canadian analysts don't appear too worried about what's happening in Vancouver. But I wonder if this city, which I have visited often and enjoy immensely, is the canary in the coal mine.

There are, indeed, ill winds blowing.

The economy is slowing down (GDP is expected to drop to 2 percent in 2013). The federal government purposely put a brake on housing markets by changing mortgage amortization periods.

Recent blips in China's economy are also a problem, as some Canadian housing markets have been sustained by either Asian investment or from Asian-Canadian citizens reliant on business income in their or their parents' birth countries.

The average price of a home in Vancouver is now $606,000, which "isn't that expensive," said Eugene Klein, president of the Real Estate Board of Greater Vancouver.

I know that statement seems either cynical or bizarre to many of us in the United States, but Klein was making a comparison to individual Vancouver markets where prices still average between $900,000 and $1 million for an average, detached, single-family house.

Neither price tag was daunting, as Vancouver buyers continued to shell out money for new home purchases as rapidly as they have done for the past two decades. Things, however, do change, even in Canada, and this dedication to having a Vancouver residence to call one's own finally hit a wall earlier this year.

"It's been a different market for us," said Klein, who tried hard to sound complacent. "About four months ago we had a sales-to-listing ratio of 19 percent, which means 19 out of every 100 homes for sale had transacted. What we have seen since then is a slowdown in our market where we have gone from 19 percent to 11 percent to 9 percent and now we are at 8 percent, so 8 out of every 100 homes are selling."

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