2009 REBGV Annual Market Report

Cameron Muir, Chief Economist, British Columbia Real Estate Association

The housing market of the past year will be remembered as a rebound of Olympic proportions. The year began with the unfolding of the credit crisis and a global recession that paralyzed many consumers.

Housing demand had fallen to a level not experienced since the mid-1980s. Everywhere there were clouds of uncertainty, with some very vocal pundits calling for the end of the world as we knew it, but that didn’t materialize.

Instead, the clouds dissipated. Canada’s conservative mortgage lending practices had protected households from the personal financial disasters commonplace south of the border. Jobs loses were only a fraction of previous recessions and housing affordability had improved to a three-year high. This was the tipping point. Households confident in their employment situation began to realize lower home prices and mortgage interest rates had reduced the carrying cost of the typical home by 26 per cent.

Homes were more affordable than at any time during the previous three years. By spring, the market was in full recovery mode. Strong consumer demand began to eat away at the swollen inventory of homes for sale. Home prices stabilized as a result, but that was just the beginning.
Momentum grew over the summer months and by Labour Day, home prices were up more than 10 per cent on January. A sizable contingent of first-time buyers took advantage of the lift in affordability, while move-up buyers saw their homes sell quickly enabling them to complete on their new purchase. Fourth quarter performance completed the circle, with home sales breaking records and home prices reaching new highs.
So where do we go from here? 
No question, the record pace of home sales during the fourth quarter is unlikely to persist through 2010. Much of the demand that pent-up under the clouds of uncertainty has likely been expended in the marketplace. In addition, mortgage interest rates are expected to start an upward trajectory before the summer is over. With home prices already at record levels, the biggest challenge in the market, post-recession, will likely be eroding affordability. Beginning in April, tighter high-ratio mortgage qualifications will also impact the purchasing power of low equity buyers. Minimum qualifications will rise from the 3-year posted fixed rate to the 5-year posted fixed rate, potentially pulling $35,000 out of the purchasing power of the average household. And in July, the HST will add a punitive cost to new home purchases over $525,000.

The expansion of the housing stock slowed considerably over the past year. The dramatic pullback in new home construction is just recently reversing as strong consumer demand and waning new home inventories signal a green light to home builders. However, the low level of housing starts over the past twelve months means there is little danger of an over-supply developing in 2010.

As we settle in to a post recession economic environment and bask in the benefits from our Olympic legacies, take comfort in knowing that during the worst financial crisis since the Great Depression, the Vancouver housing market suffered only a few bumps and bruises, and the healing process is now complete.     



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