Could a housing bubble be coming?
Here's what the experts say:

For the past decade, off and on we've heard about our over-heated housing market. From a serious downturn to a full-blown bubble burst, the naysayers have generated a lot of press. Is there any truth that a collapse is coming? To find out, we asked some experts.

"The fundamentals underlying housing demand in Vancouver are positive and will remain so for this year and next year," reports Helmut Pastrick Chief Economist, Central 1 Credit Union. These include a growing economy and employment, and low interest rates. Pastrick expects 40,000 newcomers to move to our area this year. These will include immigrants from other countries and newcomers from other Canadian provinces who head west for employment or are retiring to our milder climate.

What would have to happen for a bubble to occur?

Several telltale signs must exist. "A necessary condition is a high level of speculation," says Pastrick, who defines speculation as a market characterized by large numbers of investors buying homes which they hold for short time periods, typically less than six months. To gauge speculation Pastrick uses Land Registry data. It indicates that in Greater Vancouver, just seven per cent of properties are being bought and resold in less than six months. In 1981 this rate was three times higher and in 1990 it was about twice as high.

For evidence of a bubble, analysts typically look for a telltale parabolic (hockey stick-shaped) increase in home prices.

"This isn't the case right now," explains Pastrick. "Home price increases in Vancouver actually stalled during the recession."

Now that sales are returning to more normal levels and new listings are on the rise, Greater Vancouver's housing market is more balanced. While prices are high, the majority of home buyers can still afford a home for two reasons:

• most first-time buyers (about 20% of the market) typically pay less than the benchmark price, buying condominiums or townhomes in suburbs; and
  
• most buyers already own homes and are benefiting from rising prices as a result of increases in home equity position..

Our Expert says:

“I expect 40,000 newcomers to move to our area this year - including immigrants from other countries and newcomers from Canadian provinces who head west for employment or are retiring to our milder climate."

– Helmut Pastrick, Chief Economist

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