Hot Market forcast to stay through 2006 – no housing Bubble as thought

Thursday, June 30th, 2005

Credit union economist forecasts higher sales and prices in record market expansion

Brian Morton

CREDIT: Ian Lindsay, Vancouver Sun George Wong, of Platinum Project Marketing, has sold $430 million in product so far in 2005.

Think B.C.’s high housing prices are on the verge of a major correction?

Think again, according to an economic forecast released Wednesday by the Credit Union Central of B.C.

B.C. houses are predicted to fetch higher prices and sales volumes are forecast to increase both this year and in 2006, driven by low mortgage rates, rising in-migration, robust economic growth and improved consumer confidence.

“I don’t believe we’re in a price bubble, so there’s nothing to burst,” Credit Union Central chief economist Helmut Pastrick said Wednesday in an interview. “Nor do I think there will be a correction any time this year or next year, which would cause prices to decline.”

Pastrick’s forecast update for 2005-2006 noted that after a brief dip a sellers’ market has returned in full force.

Residential MLS housing sales are predicted to rise by seven per cent in 2005 to 103,400 units and by five per cent in 2006 to 109,000 units, setting a record in each year.

Housing prices are also forecast to rise about 10 per cent this year and eight per cent in 2006, resulting in an average B.C. price of $342,000 in 2006.

In Greater Vancouver, prices are expected to rise from an average $373,877 in 2004 to $400,000 this year and $425,000 in 2006. In the Fraser Valley, prices are forecast to rise from $293,420 in 2004 to $310,000 in 2005 and $330,000 in 2006.

New housing construction is predicted to reach 34,800 units during 2005, up from 32,925 in 2004. Next year, housing starts should increase to 37,000 units in response to higher sales and prices.

Pastrick said that one negative is deteriorating affordability. “Higher prices reduces the potential pool of purchasers. But people are shifting to condominium products, which are lower priced than single family homes.”

Pastrick added that B.C. housing activity has been on the upswing for nearly five years, but there’s still room for growth. “All markets undergo some correction at some point, but it’s not there yet,” he said.

George Wong of Platinum Project Marketing, the marketing arm of Macdonald Realty, said the forecast is no surprise to him.

“Right now, the market is extremely bullish,” said Wong in an interview. “Since the beginning of the year, we’ve sold $430 million in product. That’s indicative of the strength of the market and also indicative of the strength of people’s perception of Vancouver and B.C.”

Wong said he began selling suites in the upscale Two Harbour Green tower in downtown Vancouver last month and that it’s almost sold out — at an average price of $2.5 million per suite.

Wong said they are about to launch an entry-level project at Broadway and Oak, with prices starting at $189,000, and that there are already 1,000 registrations by interested buyers. “So, from the highest end of product to entry level, there’s strong interest.”

The forecast also said that rising land and construction costs will drive new housing prices higher.

As well, more in-migration will push down the rental vacancy rate, despite more new rental supply coming on the market and more renters buying homes.

The market vacancy rate is forecast to decline slightly to 2.3 per cent by October and to 2.0 per cent a year later.

All regional markets are expected to post gains in housing activity, although some markets were late seeing gains due to a weaker local economy and less population growth.

Those areas are now poised to record greater percentage gains than the larger urban markets, the forecast noted.

Pastrick noted that another factor that can contribute to a market downturn is a large amount of speculation, something that isn’t happening at the moment.

“Demand has been driven by sound fundamentals — the purchase of homes as residences or for long-term investment,” he said.

The survey noted that less than four per cent of purchases were bought for speculative buying — defined as properties being resold six months or less after purchase.

That compares to 10 per cent at the peak of the last strong market upturn, which ended in 1990, and to over 20 per cent in 1981, when there was a price bubble.

However, the survey said that speculative activity is a natural consequence of a hot market and is expected to become proportionately larger until the market turns down.

As well, the Credit Union Central forecast also said that higher employment levels indicate that the construction industry is expanding, along with the number of firms.

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