Experts weigh in on market future
The evidence is clear.
When you look at any long-term real estate graphs for the Lower Mainland, real estate has consistently proven to be an appreciating investment.
There are however, a few dips - in 1982, 2001, and more immediately apparent to consumers and REALTORS® - the past few months.
Last month, 1,568 homes changed hands in the Real Estate Board of Greater Vancouver area, a decline of 53.5 per cent from 3,384 sales in August 2007. In the Fraser Valley, 910 homes changed hands in August, a decrease of 48 per cent compared to the 1,763 sales during the same month last year.
These significant decreases didn’t just materialize overnight. The slowdown in sales began in August of last year, coinciding with the sub-prime problem in the United States, followed by price instability in the fall of 2007 and then month-to-month price decreases in many areas started in earnest in the spring of 2008.
There are a number of reasons, but low consumer confidence – it’s at a seven-year low – is the main reason, according to Cameron Muir, BC Real Estate Association’s Chief Economist.
“Home buyers are cautious not just because of news reports about the market downturn, but because they’re seeing increases in staples such as oil and food prices. As a result, they’re not confident about the future and they’re evaluating their spending habits and their budgets.”
Muir explains that even a modest decline in the real estate market has a psychological effect on potential buyers.
“If the price of gas falls anywhere in the Lower Mainland, we see drivers lining up to buy more gas. If the next day, the price of gas again falls, we see even more drivers line up to buy, even if prices are expected to continue to decline.”
But with a house, it’s an entirely different psychology, says Muir. “A house is something we rarely buy, and right now we see there is a tendency to put off the buying decision until prices stop falling.”
Which leads to the question, when will that be? Will the market continue to pause, improve or worse, lead to another big housing recession like the one in the early 1980s when properties and fortunes were lost?
“The 1980s were a completely different situation,” assures Muir. “Interest rates rose as high as 21.75 per cent and unemployment reached 12 per cent.”
Helmut Pastrick, Chief Economist at Central 1 Credit Union agrees that our underlying fundamentals are strong. “Our economy is robust and our employment rate is stable, and we expect continued growth in immigration.”
While no one is forecasting an extended downturn, we are seeing every major country revising their economic forecasts downward. “Overshadowing our growth is the slowdown in the US,” affirms Andrew Ramlo, an economist at the Urban Futures Institute. For this reason, Pastrick projects home prices will likely continue to soften for the rest of 2008 and through 2009 in most of the Lower Mainland.
“An important statistic will be the supply of homes for sale. When this number begins to shrink, the bottom is near.”
Muir adds that a supply adjustment is just what the market needs. “This means fewer listings coming on and remaining, a process that will play out and is now underway.”
The Multiple Listing Service® for both Fraser Valley and Greater Vancouver saw a decline in the number of active listings from July to August 2008 – for Fraser Valley, it was the first decline in eight months. Muir says once we see selection tighten and prices start to increase, the fence sitters will make the decision to buy a home. “Even with a few years of flat home prices, the market will come back.
“Real estate has consistently proven to be an appreciating investment in the long term and this will continue.”
The Schacter Team - Langley Market Analysis