Vancouver home prices to fizzle, not pop – Vancouver Real Estate News February 2012
What’s taking the sizzle out of Vancouver prices and putting the brakes on sales are expectations that rock-bottom Canadian mortgage rates will stay low, so there is no rush to buy.
At the same time, Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available.
But with immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
LOCATION, LOCATION, LOCATION
Hemmed in by mountains on one side, and the Pacific Ocean on the other, land-scarce Vancouver can’t build homes fast enough to cope with demand from locals, immigrants and Chinese investors, who see Canada as a perfect place to park their cash.
In a report published last month, Demographia, a consultancy on urban development, tagged Vancouver as the second most unaffordable of the housing markets it surveyed, with median house prices at 10.6 times income levels. No. 1 is Hong Kong at 12.6 times.
The average price for a residential property in Vancouver in December was $734,766, more than double the national average of $358,480, according to Canadian Real Estate Association data.
A single family home in Honolulu, the most expensive U.S. metropolitan market in data from the National Association of Realtors, fetched a median $597,000 US in the fourth quarter, while Detroit homes were worth a paltry $50,800 US.
Nearly one-fifth of Greater Vancouver’s 2.1 million people are ethnic Chinese, according to 2006 census data, by far the highest proportion for any city in Canada.
No official figures are available on the percentage of Vancouver home sales to investors from mainland China or Chinese immigrants.
HOME FROM HOME
Money from Hong Kong investors, who were edgy ahead of the city’s handover to Chinese control in 1997, is credited with changing Vancouver’s skyline as immigrants streamed into Canada and funds poured into new condo towers that now dominate the waterfront.
The factors that tempted immigrants then remain today: the chance to learn English in a city that is a virtual “home from home” with Chinese eateries, TV channels and newspapers. Beijing is 11 hours away, versus 14 hours from Toronto or New York.
Despite a mid-recession dip around 2008, Canada’s housing market has remained resilient for the past decade, and the Vancouver market has outperformed the rest of the country for seven of the last 10 years.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.
In the United States, the Case-Shiller index shows home prices are back at 2003 levels after a steep slump in 2008.
There is always talk of bubbles, of course, but experts don’t see the Vancouver market crashing as the U.S. one did.
Mortgage rates are at near record lows just above 3 percent, but Canadian borrowing rules are tougher and the sub-prime market that downed the U.S. housing sector is tiny. With inflation muted and the economy recovering only slowly from recession, interest rates will likely stay low for years.
Chinese investment is still the wildcard. Reliable statistics are hard to find, but analysts expect Beijing’s moves to cool its own property market may hurt Vancouver.
Beijing has taken measures to rein in its property market – including raising mortgage rates and minimum downpayments – to ease public discontent with rocketing home prices. It has vowed to continue to thwart property speculation in 2012.
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Source, Image: Reuters, torel78