British Columbia‘s real-estate boom is forecast to last beyond 2005, with prices expected to rise another 15 per cent this year and a further 10 per cent the year after that.

Helmut Pastrick, chief economist for Credit Union Central of B.C., said no price bubble currently exists, and while there’s potential for one to develop, the market is still operating under sound fundamentals.

However, because of the unprecedented price levels and the sheer volume of recent housing sales, traditional ways of measuring turning points in the market may no longer apply.

Pastrick expects housing prices, sales volume and construction activity to continue rising both this year and next.

“A market peak is not yet in sight, and unless mortgage rates rise substantially more than expected, a stronger economy and higher population growth will boost [housing] demand and keep the current upswing alive,” Pastrick said.

“The current upswing, which began modestly in mid-2000, is forecast to set a duration record and will not reach its peak until after 2005. The housing market is operating under sound demand fundamentals and speculative activity is not high.”

However, Pastrick forecasts rental vacancy rates to rise with the outflow of higher-income tenants to home ownership, combined with increased rental supply.

Positive factors for rental demand include higher interprovincial migration levels, job growth, and deteriorating purchasing affordability, due to higher housing prices and moderately rising mortgage rates, he said.

But with developers stepping up construction and more inventory coming on line, this should help ease the rate of price increases next year, Pastrick added.

“Housing starts will climb higher next year, as market conditions remain supportive, and there is still considerable pent-up demand,” the economist said.

“Land and construction costs are rising rapidly. The trend to more listings from the existing housing stock coming onto the market will continue.”

Pastrick predicts new construction in B.C. will rise this year to 32,400 units, up 24 per cent from 26,174 actual housing starts in 2003, with a further rise of 8.6 per cent to 35,200 units in 2005.

As for unit sales on the Multiple Listing Service, he expects to see 102,600 housing transactions this year, a 10-per-cent increase over 93,095 sales in 2003, and a further 5.75-per-cent boost to 108,500 next year.

Meanwhile, B.C.’s average housing prices will hit $303,800 this year, an appreciation of 15 per cent over 2003, and climb another 10 per cent in 2005 to $335,000.

“MLS residential unit and dollar volume sales will set records this year and next,” Pastrick said. “When combined with higher prices, that means total dollar volume in B.C. sales will top $31 billion this year, and break through $36 billion next year.”

Last month, MLS data shows 10,048 homes worth $2.91 billion sold throughout the province, a 36.5-per-cent increase in dollar value and an 18-per-cent rise in units compared to May 2003.

It was the unprecedented third consecutive month in which housing sales exceeded 10,000 units. In Greater Vancouver — B.C.’s hottest housing market — a total of $1.5 billion worth of properties changed hands in May, a year-over-year rise of 40 per cent from $1.07 billion in May 2003.

© The Vancouver Sun 2004