Derrick Penner
Sun

The upside of British Columbia’s real-estate-market cycle has been steep, but the downside will not be as rapid as in the U.S., according to the real estate firm Century 21 Canada.

House prices in select B.C. markets have been flat or risen up to 12 per cent in the last year. That follows a much steeper rise of between 89 per cent and 114 per cent over the last five years, Century 21 reported Wednesday in its annual survey of house prices.

However, while the median U.S. house price dropped 11.5 per cent compared with a year ago, Century 21 Canada president Don Lawby said B.C.’s economy is strong enough and its real estate sector different enough to isolate the province from a similar decline.

Lawby, in an interview, said that while real estate sales have dropped, B.C.’s economy has grown more than the U.S. economy, and is spread across a more diverse base than has been the case in the past.

By contrast, certain U.S. markets — California, Arizona, Florida and some parts of the North East in particular — have been hit by a string of ailments, Lawby added, from weakening economic conditions to speculative building that has faltered on a shifting financial landscape.

For one, Americans have had a longer history with exotic loans, such as the no-money-down and interest-only mortgages.

“[They] have tax-deductible mortgage interest in the U.S.,” Lawby added. “We don’t in Canada. So people use their homes more like ATMs in the U.S.”

He added that as prices went up in the U.S., owners extracted a lot of wealth from their homes to finance consumer spending.

However, the steady rise of mortgage rates and increase in mortgage payments have put a crimp in some U.S. markets.

“What I see is the new-housing market has slowed in some places,” Lawby said. “That’s what’s happening in those [specific American] areas.”

Tsur Somerville, director of the centre for urban economics and real estate at the University of B.C.’s Sauder School of Business, agreed with Century 21’s assessment that economic factors in B.C., the Lower Mainland in particular, will keep it immune from downturns in U.S. markets.

The province benefits from the current strong world market for commodities and abnormally high levels of government spending on infrastructure that support employment.

Forestry-dependent communities, however, “will be proportionally hit much harder” by a slump in U.S. housing starts, Somerville said.

“We would expect to see much more trouble in Ontario [real estate markets] before we saw trouble in B.C.,” Somerville said.

However, the UBC economist added that there are some unknown factors in B.C.’s market that could come into play.

A rising number of those exotic mortgages, which have only recently been approved in B.C., is one factor.

The reaction of pre-sold condominiums buyers to a price decline or economic slowdown is another, Somerville added .

“You can cancel pre-sales at a much lower cost than the purchase of a finished unit,” he said.

People’s expectations about future price gains form another big unknown, Somerville added.

Expectations are a big part of any economic model he said. Often, economic models look back to previous-year gains to form an estimate for future gains.

“That’s only good for a while,” Somerville said. “But if people’s psychology changes, then even with strong underlying economic fundamentals, we could get more of a hit to the real estate market.”

UPSIDE

Realtors at Century 21 Canada have tracked the rise of real estate prices in select locations. Some examples:

Location 2006 price 2001 price 6-month change 5-year change

Burnaby $600,000 $280,000 3% 114%

Kelowna $375,000 $185,000 7% 103%

Vancouver

West side $1.1 million $551,000 10% 100%

Victoria $445,000 $235,000 6% 89%

Calgary $445,000 $207,815 1% 144%

Source: Century 21 Canada

© The Vancouver Sun 2006

 

Stuart Hunter
Province

A new report suggests B.C. home prices will not decline as they have in some U.S. markets and hot spots like Vancouver’s west-side and North Vancouver will remain torrid.

According to the National House Price Survey conducted by Century 21, house prices have cooled off in most of Canada and B.C. except for North Vancouver, which was up 12 per cent in the past six months (and 108 per cent over the past five years) and west-side Vancouver, which increased 10 per cent (and 100 per cent over the past five years).

“I think we are moving toward a more stable market, a more normalized market than we have seen over the last five years,” said Century 21 president Don Lawby.

“British Columbia’s economy continues to be fuelled by construction for the 2010 Olympic Winter Games, growth in high-tech business, exposure to Asia-Pacific trading opportunities and migration of retirees from other provinces.”

Nationally, Red Deer, Alta., was the hottest market in the past six months up 19 per cent (68 per cent over the past five years).

In B.C., price growth over the past six months slowed to seven per cent in Kelowna and Abbotsford, six per cent in Victoria and zero in Vernon.

He predicted Canada will not suffer price crashes seen in some U.S. states such as Arizona and Nevada, which have been exacerbated by speculation and lending policies.

© The Vancouver Province 2006

 

Incomes failing to keeping pace

Ashley Ford
Province

Keeping a roof over your head is getting a little more financially difficult, especially in high-priced Vancouver and the booming Western provinces.

Although the vast majority of Canadian households live in suitable and adequate housing, 1.7 million, or 14 per cent, spent 30 per cent or more of their budget on shelter costs in 2004, a Statistics Canada study has found.

Traditionally, the idea of affordability has been based on a ratio of housing costs to total household income, with a household paying 30 per cent or more of its pre-tax income for housing considered to have affordability problems.

The problem stems largely from high house prices versus relatively modest household incomes, which haven’t kept pace with housing costs, said RBC assistant chief economist Derek Holt.

That trend is expected to ease in some parts of the country next year as prices start to level off and even decline, but not in B.C. or Alberta.

The study found 12 per cent who were spending more than 30 per cent of income on housing, including two per cent who were spending 50 per cent or more.

However, high prices notwithstanding, it suggests it is still better to own a home than rent.

The study revealed renters were more likely to have affordability problems and almost a third — 31 per cent — of people who rented spent more than 30 per cent of their income on shelter compared with only six per cent of owners.

Rental households consisted mostly of individuals living alone, relying on government assistance, or having low incomes.

The average shelter cost in 2004 was $9,400, about 15 per cent of an average household budget. The study said renters in higher-priced cities such as Vancouver were more likely to struggle with affordability than home-owners.

“Although shelter costs vary considerably across Canada, household income was the major factor affecting affordability,” StatsCan said. Renters earning less than $19,190 a year were 18 times more likely to be cost-burdened when it comes to housing than people above the median income.

Having two earners in the household also significantly reduced the odds of affordability problems, the study says.

© The Vancouver Province 2006

 

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WASHINGTON (AP) — Sales of existing homes fell in 38 states during the third quarter, led by steep declines in Nevada, Arizona, Florida and California, as the once-booming housing market showed further signs of a steep slowdown.

The National Association of Realtors said Monday that sales dipped to a seasonally adjusted annual rate of 6.27 million units nationwide, down by 12.7% from the period a year ago.

The declines were largest in once-booming areas of the country. Sales fell 38% in Nevada, 36% in Arizona; 34.2% in Florida and 28.6% in California.

Nine states had sales declines of 20% or more compared with the third quarter of 2005.

The weakness in sales also affected prices, with 45 metropolitan areas experiencing price declines, according to a separate survey the Realtors did of 148 metropolitan areas.

The price survey showed that the median — or mid-point — price for an existing home sold in the third quarter dipped to $224,900, down 1.2% from a year earlier.

Sales rose in 10 states. In two states — New Hampshire and Vermont — the Realtors did not have data available.

The nationwide 12.7% drop in sales was from a 2005 pace of 7.18 million units, which was the second highest in history. The all-time record sales pace was an annual rate of 7.19 million units in the April-June quarter last year.

Sales of both existing and new homes set records for a fifth consecutive year in 2005 but have been falling steadily this year.

The plunge in housing shaved a full percentage-point off economic growth in the July-September quarter with economists predicting a similar reduction in this quarter.

But David Lereah, the Realtors’ chief economist, said he believes price declines in formerly red-hot areas of the country are setting the stage for a rebound next year.

“With the market in full transition, buyers now have choices and sellers are more willing to negotiate,” he said. “Under these circumstances, it’s no surprise that overall home prices are slightly below a year ago.”

 

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