B.C. housing sales will plunge 28 per cent: report

Oct. 30, 2008 | Market Update | By Aaron Rossetti

Expected recovery in 2009 depends on whether global financial crisis subsides. Expect British Columbia real estate sales to have fallen substantially by the end of this year, but stage a modest recovery in 2009, according to the latest forecast of the B.C. Real Estate Association.

Sales recorded through the MLS® should fall 28 per cent to 73,700 units across the province by the end of 2008, compared with 102,805 units in 2007, according to the forecast released Wednesday.

That's a more optimistic assessment than the forecast released last week by Central 1 Credit union, which predicted that sales will continue to fall through 2009, with steeper price declines, before recovering in 2010.

However, both forecasts agree that at whichever point the housing market turns up from the downturn will depend on the current world financial crisis subsiding, B.C. not slipping into recession and a return of at least a little bit of consumer confidence.

"I don't know that the [B.C. Real Estate Association] forecast is optimistic," Cameron Muir, BCREA's chief economist, said in an interview.

His prediction is that sales levels in 2009, while higher than 2008, will still be similar to levels seen in 2001 or 2002, which were still relatively low.

"It's not like they'll be bouncing back into this great market."

However, Muir added that real estate sales in B.C. have fallen further than the underlying economy suggests they should.

While Muir expects B.C.'s economy to slow further in 2009, he also believes it is possible consumers will have recovered a bit from their financial fears by the middle of next year enough to consider major purchases again.

And by then, Muir added that prices will have dropped enough to make housing more affordable to more potential buyers.

His forecast is for the provincial average home price to dip nine per cent in 2009 to $413,000 compared with 2008.

Muir's forecasts that the average price across all 12 months of 2008 to remain three-per-cent higher than 2007, however that masks the fact that prices peaked in March and have dropped since then.

"I would argue that the housing market has already been shocked," he said. "Prices have declined 14 per cent [on a month-to-month basis] between March and September."

At some point, Muir said, he expects inventories of unsold homes to decline as people decide they don't need to sell, and sales should pick up.

Helmut Pastrick, chief economist for Central 1 Credit Union, said that while his own forecast does not agree with the BCREA on the exact numbers, he does agree that B.C.'s economy won't go into recession, and consumers will get a bit of their wind back at some point in 2009.

"I guess we're talking about degrees here really, and magnitudes," Pastrick said in an interview.

By magnitude, Pastrick forecasts that B.C.'s MLS® sales falling 30 per cent to 70,700 units by the end of 2008, and a further 17 per cent to 59,000 by the end of 2009.

On prices, Pastrick forecasts that prices will decline 13 per cent between 2008 and 2009 to reach $310,000, and a further five per cent to $366,000 in 2010.

However, forecasting market changes can be notoriously difficult, according to Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.

All that a series of forecasts with differing results can tell you, Somerville added, is the general direction of activity and suggest a range of views as to what might happen.

"We're good at predicting what's going to happen when we're moving in one direct path," Somerville said of economists. "We're really bad at predicting when markets are going to turn."

For example, Somerville said that in January, when oil was headed to its peak price of $147 US per barrel, few economists would have forecast that by October it would be $67 per barrel.

B.C. real estate estimates

. 2007 MLS® sales: 102,805

. 2008 MLS® sales forecast: 73,700

. 2009 MLS® sales forecast: 76,500

. 2007 average price: $438,975

. 2008 average price forecast: $453,000

. 2009 average price forecast: $413,000

Source: B.C. Real Estate Association

Derrick Penner
Vancouver Sun

Wednesday, October 29, 2008