BC cities risk seeing homes “bubble” burst

Thursday, July 28th, 2005

REAL ESTATE: But price correction unlikely to cause much pain


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Vancouver and Victoria’s housing markets are at risk from a “bubble market” — but not much, says a new quarterly monitor examining the issue from TD Economics.
   Carl Gomez, the TD economist and author of the report, said the two cities have “the greatest risk in Canada of seeing a price correction at some point in the future.
   “But predicting exactly when such a possible correction will occur is difficult since potential speculative bubbles can persist much longer than fundamentals warrant.”
   And, even if a price correction comes, Gomez said it is extremely unlikely there will be a deterioration close to previous down cycles, such as 1981-1983, when some Vancouver home prices slumped by up to 50 per cent.
   He says any attempt at quantifying or timing a possible market correction in either city would be a “rather futile, if not dangerous, endeavour.”
   Gomez said what prices do over the next half decade should not be of great importance to potential homebuyers in Vancouver or Victoria who are buying for the long term, since real home prices have consistently grown over the longer haul despite short term hiccups.
   “If a potential homebuyer is financially comfortable enough to make their mortgage payments while enjoying their house, any potential fall in the market price of their home should have little to no impact on their standard of living.”
   But Gomez said speculative buying by both investors and homebuyers has been a factor in driving up home prices here.
He also said a booming economy, courtesy of high commodity prices and strong investment demand, can justify some of the price gains in both cities.
“In 2004, B.C. experienced a solid four-per-cent increase in personal disposable income,” he said.
The 2010 Winter Olympics could also justify some of the recent premium in prices.
Nationally, there are few signs of “bubble behaviour,” Gomez said.
“We can effectively rule out the existence of a nationwide housing bubble since national home prices do not appear to be irrationally overheating,” he said.

© The Vancouver Province 2005

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