Yesterday I attended a housing market update put on by Andy Ni at the Canada Mortgage and Housing Corporation.
It was encouraging to hear him confirm information that I have been telling my clients for the past year or so. He is obviously a much more credible source of that information than I am!
The key points he made address the issue of Bubble or not? and where is the market going. He outlined the obvious reasons why it does not seem like we are in a housing bubble market and contrasted it with times when we have had a housing bubble that subsequently burst. Of note, there is a low level of speculation occurring (my additional explanation on that = most people are buying homes to live in not to flip and are therefore less likely to suddenly sell if the market starts going down. Mass sell off can cause a bubble to burst-that is unlikely here). He also noted the amazingly low interest rates, which would have to increase significantly to affect the market. These rates allow people to get into the market with lower incomes than would otherwise be necessary to make mortgage payments. CMHC predicts the rates may go down again this year. The strength of our economy is also an important factor as is consumer confidence. Both help keep the market strong. Low inflation, low unemployment and migration to Greater Vancouver are also important factors. While the changes in the US market have affected ours, in part because people react to fears appearing in the media which suggest that if the US market slows so will ours. To date this impact has not been significant. According to Mr. Ni the downturn in the US market is most likely to affect us when housing starts decline and less forest products from BC are sold to the US as a result. Given the importance of the forest industry to our economy, this could have a significant impact on our economic state.
The CMHC predicts further market price increases over the next 2 years despite the fact that homes are becoming less and less affordable. Mr. Ni also noted how few properties are currently available for buyers-making it a good time to sell. He also said something which resolved a dispute I had had with a potential client (who called me a bunch of names saying I was lying because of the following). I had told a potential client who was thinking of selling and upgrading that in my opinion this market worked for him at both ends as he could command a very high price for his home, and because he would need to borrow more money for his upgrade, he could also take advantage of the fantastic interest rates increasing his buying power. Mr. Ni confirmed this in my opinion-he said this market is what they call a "Balanced" market. It is not one where either buyers or sellers have a distinct advantage over the other. He noted the low inventory working for sellers and the low rates for buyers.
Finally, Mr. Ni confirmed one more point that a lot of clients have not agreed with me on lately. People keep telling me that the prices are going down, suggesting good deals coming up shortly. I have said that I do not think this is the case. While the number of homes selling has decreased, the prices do not seem to be dropping. I have explained to clients that I think the reason that prices are coming down is because either realtors, or more likely, sellers, are overpricing their homes. Mr. Ni said exactly that! My further explanation is that with overpricing, the homes then do not sell-which means the overpriced Seller has to lower their price. Had they priced the property correctly in the first place, the prices would not appear to be coming down........Having said that, given that overpricing means less bidding wars, and given that bidding wars push the prices up, overpricing could be leading to price reductions over the long term....(if that makes any sense).
Now what you are all waiting to hear: CMHC forecasts a 5% increase in prices for 2007. Others have forecasted higher (up to double) but even this more modest rise bodes well for Vancouver!!!
