Vancouver Real Estate Prices Continue to Push Up - How Long Can This Last?

     The prices for Vancouver housing both for re-sale and new construction continued to push up by double digit percentages in 2007 in spite of the doom and gloom seen south of the boarder.  Housing starts are up for 2007 and were at the highest levels since 1994 for Vancouver .  Volumes of sales were also up in the re-sale market by about 13% according to the CMHC Housing Now January 2008 report.  Immigration both inter-provincial and international has also continued to provide substantial growth in  Vancouver ' s population.  The CMHC ' s Rental Market Report for Vancouver issued in late 2007 shows extremely low vacancy rates and increased rental rates in both purpose built and "secondary" rental markets.  The secondary market actually comprises 25% more accommodation than the so called "primary" market.  The secondary market is mostly comprised of apartments owned by individuals who rent them out.  The CMHC report shows private condominium rental vacancy rates at 0.2% in 2007.  Mortgage rates are still historically on the low side and forecast to marginally decrease over the short term.  All of these statistics point to a continued strong demand for homes.  There are several mitigating factors that would suggest however that we may be starting to hit the ceiling in terms of pricing and that volumes of sales will begin to fall.  
     The first factor and most cited over the last several years is affordability.  In late 2007, Vancouver ’s affordability as measured by the CMHC (the % of household income needed to service a 25-yr amortized mortgage with 25% down) creped above the 75% mark and is the highest it has been since 1990.  Most first time buyers can not afford to purchase a home – either they need higher than average down payments or higher than average incomes to be in the running. 
     The next factor relates to speculators.  New construction and the “pre-sale” market has long been an attractive way for “investor” (read ‘flipper’) buyers to make substantial gains.  By putting down between 5-20% of a purchase price, waiting 2 years and garnering  price lift from between 20-40% over the two year period, many of these “investors” multiplied their down payments many time over upon the sale of their properties.  What appears to be happening now is that the combination of the number of people flipping their property immediately after closing and the diminishing affordability of those properties is creating an increased number of listings and longer turn over time at freshly completed new developments.   Case in point, the Tapestry building by renowned builder Concert Properties presently has over 30 active listings.  The Vine in Kistilano and the Pomaria in Downtown False Creek North have now cooled down respectively to 8 and 10 active listings.  By Sam Wyatt Vancouver Real Estate Agent.
     The third factor is the US economy and the real and perceived threats that it poses for Vancouver ’s real estate market.  The perceived threat is that the mortgage crises that spawned the downward spiralling housing markets in the United States will happen here.  This is an unfounded fear.  The reality is that there is an extremely small percentage of loans in Vancouver that are “B” graded or “Sub Prime”.  There is a substantially lower risk here of home owners being unable to pay their mortgage and so a wholesale sell off here is far from likely.  The real threat from the floundering US economy and its corresponding weak dollar is that as a whole, the US purchases the vast majority of Canadian exports and Vancouver and BC’s economy do depend on those sales.  In particular, the forest sector is beginning to suffer along with the film and television industry in BC.  Although these losses will likely be comparatively small in the overall picture, the cumulative long term effect of less robust sales will be a diminishing of the “Wealth Effect”.  People’s sense of financial stability may be affected by the imagined risks as well as the real risks of market sell offs and job losses. 
    Ultimately the economic outlook for Vancouver appears to be good and we can reasonably expect the market to remain stable and strong but it seems likely that as increased listings coupled with lower sales, affordability, and the perception of lower future returns grow, that more people will choose to “play it safe” and pull their money out of speculating with presales and renovation flips.  With lower certainty, we are likely to see a decreasing volume of sales and much slower price growth over the next coming years.