CREA Hikes Forecast for Home Prices
The Canadian Real Estate Association has gone back to the drawing board again, saying the number of multimillion-dollar Vancouver deals have “surged unexpectedly” as it raised its forecast for the year.
The national trade association said the average national resale price will gain four per cent by the end of the year because of high prices in Vancouver. In its last forecast – made in early February – CREA said the price would advance 1.3 per cent.
Prices in Vancouver have gained almost 30 per cent in the last year, causing concern among many in the industry who are concerned about the sustainability of such gains. Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said while sales have softened across the country the risk of a sharp correction is “highly concentrated in geographical terms.”
He said while sales have softened across the country, the risk of a sharp correction is “highly concentrated in geographical terms.”
In March, CREA said the national average resale price was an all-time high of $366,000. But if Vancouver is stripped from the figure, the average price would be $327,000. Twenty two of the 25 cities surveyed posted price gains in March, with Calgary, Edmonton and Victoria the only exceptions.
CREA also added that sales would also be stronger than it expected in 2011, although still slower than 2010. It expects 441,000 sales will take place, down 1.3 per cent from a year ago. It previously suggested a decline of 1.6 per cent.
Forecasting has proven difficult for the association - in November it said sales would fall by 9 per cent. In the same forecast, it said the national average price would pull back slightly in 2011.
Private sector forecasts are also varied – Capital Economics has suggested prices could fall as much as 25 per cent over the next several years, while the major banks expect prices to moderate as higher interest rates keep people out of the market.
CREA president Gary Morse said mortgage rates “remain very attractive and are keeping financing within reach for many homebuyers.
Those rates are expected to climb, however, and while inexpensive borrowing has helped many homeowners stay current on their payments there are signs that they are under increasing stress. In Alberta, for example, the number of people three months or more late on their mortgages is double the national average at 0.87 per cent.
The rising rate of delinquency comes as economists warn that Canadians are under rising pressure when it comes to servicing debts. As interest rates move higher in the coming months, many could find it even harder to make their monthly payments.
In a statement Monday, CREA’s chief economist Gregory Klump said even if rates increase they will be “within short reach of current levels.”
“Continuing job growth will underpin housing demand, keeping the housing market in balance and stabilizing home prices.”
The house Manyee Lui is showing today is listed at $2.2 million. Although the lot is only 33 feet wide and the house is nothing more than a blandly handsome two-storey, Lui expects it to sell quickly, even though the market’s turned a little tepid. With 2,900 square feet, the place is big enough for four bedrooms and an additional self-contained suite. All things considered, she says, “It’s not so expensive.”
Lui is simply telling it like it is: This house in the Dunbar neighbourhood may not be anyone’s idea of a dream home, but it delivers respectable accommodation for a reasonable price, at least by the standards of Vancouver’s west side. With a standard city lot trading hands for around $1.4 million and construction costs running at least $200 a square foot, it doesn’t take much of a house to hit the $2-million mark. And this summer and fall, as real estate markets wilted in most of the country, vertigo-inducing prices for properties on Vancouver’s west side held steady or even edged a little higher.
The question a lot of people were asking is, Who on Earth is buying them?
Lui explains why she’s so confident the home will sell: “It will appeal to a buyer from China.” She allows there was a time when Chinese buyers’ architectural preferences differed significantly from the local norm, but over the last 10 years their tastes have widened and become more westernized. Now long-term Vancouverites and incoming Chinese are seeking almost exactly the same thing—except, Lui says with a laugh, “we can’t afford it.”
True. When Lui says “we,” she’s talking about the locals, people who make their living in Vancouver. Now that the forestry industry has been eclipsed and the place has a median household income that is only average by Canadian standards, Vancouver is a city with no visible means of support. The affordability ratio has rocketed upward so quickly that it is now the steepest on the continent: more than double the Canadian average and more onerous than in places like New York and San Francisco. No wonder Vancouver is at the top of the media’s suddenly urgent bubble watch, not just in Canada but also in the United States; outlets ranging from Reuters to Businessweek have reported on a housing market they suspect is ripe for the kind of downfall the Americans are only too familiar with.
If “buyers from China” answers the “who” question about Vancouver’s unique real-estate market, the follow-up question—“Where is this leading?”—is harder to answer. The torrid affair between eastern Asia and Vancouver real estate, now in its third decade, is actually a love triangle from which each party derives very different things. When wealthy Chinese immigrants buy property in Vancouver—and they utterly dominate the top end of the market—they’re actually buying a form of insurance. What the federal and provincial governments get out of these newly minted Canadians turns out to be a modern form of the infamous head tax that was imposed on Chinese migrants in the 19th century. And what Vancouver gets is an economy that boasts a lot of froth, and not much substance. From all three angles, it feels like a relationship that is built not so much on Commitment as on enjoying the good times while they last.
In 2003, renowned Vancouver architect Bing Thom remarked that his city was becoming “the Switzerland of the Pacific.” The Hong Kong-born Thom was referring to the way the city offered a safe and comfortable harbour to elites from around the Pacific Rim in search of fresh air, good schools and geopolitical peace of mind. About the same time, Andrea Eng heard a Korean billionaire refer to the city as “the Geneva of the Pacific.” Eng, who has spent most of the past two decades brokering deals on both sides of the Pacific for Li Ka-Shing—the world’s wealthiest Chinese businessman—picked up on the phrase and began to use it on her website. By 2009, the concept had received academic validation, after University of British Columbia historian Henry Yu invoked it in a journal article about the network of Asian-born and -descended Canadians who link this country to the world’s newly dominant economic zone—a place that will increasingly determine Canada’s own prosperity. “Vancouver, in particular, is an incredibly sought-after location,” he says. Globe & Mail
Jared Dreyer
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Jared has built his business based on a passion and commitment for delivering exceptional client service. He has provided superior financing solutions to thousands of happy clients over the past 18 years.
As a Government Relations Committee Member of the Canadian Association of Accredited Mortgage Professionals (CAAMP), Board Member and Director of the Mortgage Broker Association of BC (MBABC) for the past 2 years, Chairing the Education and Public Relations Committee, Board Member of the VERICO National Advisory Council and Director of the Mortgage Brokers Institute of BC (MBIBC), Jared works diligently to accomplish positive change within the mortgage industry.
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