Vancouver’s resale real-estate rebound ‘too much, too fast’

Oct. 8, 2009 | Market Update | By Aaron Rossetti

The Vancouver Sun | Derrick Penner --The recent whipsaw rebound in Metro Vancouver's resale housing markets was likely "too much, too fast," according to the estimate of TD Economics' latest housing outlook.

After collapsing by just over one-third in 2008 compared with the previous year, the number of home sales in Metro so far in 2009 is 19 per cent higher than a year ago, TD said in the report.

And while average resale values dropped by about one-third to $436,000 between last October and this April, TD said prices recovered to an average $608,000 by August, a mere eight per cent from their previous peak.

However, for Metro Vancouver, Gauthier said TD Economics' estimate is that the pent-up demand that welled up during the uncertainty of last fall's financial crisis was largely met by June.

"The current sales rally will probably wane in the months ahead," said report author, economist Pascal Gauthier, "and more listings have started to come on tap, a trend we expect to continue."

And while Gauthier doesn't expect prices to dip again, economic conditions will likely take another bite out of sales in 2010.

He said incomes in Metro Vancouver are not rising substantially, although home prices have nearly recovered, so the increased affordability of housing "rests solely on low interest rates, which will start to reverse course in late 2010."

Nationally, the TD Economics report noted that Canadian housing sales rebounded by 61 per cent at the end of August compared with a year ago after collapsing by almost one-third in the last half of 2008.

While some had argued all along that Canada's housing market would not experience the extreme decline seen south of the border, "the magnitude and speed of the rebound was nonetheless surprising," Gauthier said.

"No other Canadian economic indicator has rebounded as sharply as sales of existing homes over the last few months."

Gauthier said current low interest rates, spurred by "aggressive easing of monetary policy" by the Bank of Canada, which were intended to cushion the Canadian economy from the worst of the U.S. credit crisis, "proved to be more of a trampoline for resale housing markets."

Once the dust from the economic downturn had settled, Gauthier wrote, people who had only held off buying a home because of uncertainty about their own financial situation found themselves in an excellent position to take the leap.

Mortgage-carrying costs, which fell from 32 per cent of an average earner's income in early 2008 to 26 per cent a year later, should remain in the area of 27 to 29 per cent next year, which should be "good enough to support a modest growth in sales and prices."

"And while prices are trending up again, this window of opportunity remains open to many Canadian households, even first-time buyers," said Gauthier.

But this demand will have spent itself by November, Gauthier estimated