The Canadian Housing market and, more specifically, the Greater Vancouver Housing Market has had some significant movement in the last couple of years. You don’t have to be a savvy market analyst to see the very dramatic decline and then rise again of the value of housing in the GVRD. At the beginning of 2008 analysts were calling our market overvalued by as much as 25% depending on who you chose to believe. Most were predicting a downward correction and we were seeing a steady decline during the first 2 quarters of 2008. In the later half of last year we saw the American Financial sector take what many have called the largest hit since the dirty 30's and all of our markets seemed to get swept up in the backwash of their steep decline.
In the first part of 2009 we seemed to finally see the separation between us and them (the American markets) and armed with very low interest rates, consumer confidence returned, pushing our housing market up very quickly.
Some predicted a good recovery, myself included,(blog) but I don’t know of anyone who expected the recovery to be this quick and this dramatic. Housing sales and prices are now exceeding previous market highs before the downturn and as of yet they still continue to rise at a very fast pace. Now the questions turns, once again, to how much can our market bare?
If the market was overvalued before the downturn, in a relatively good economic period, how can we expect the market to grow much more in our current, not so great, economic cycle? I’ll leave any definitive answers to the crystal ball readers but I can point to some good studies being done of the current market to guide us along.
The Canadian Real Estate Association (CREA) is predicting a steady increase in inventory early in the new year which should ease the upward pressure on pricing and hold affordability at current levels. (press release) The low interest rates are expected to hold which should keep buyers in the market and we aren’t expecting rates to move much until the later part of next year. The fact does remain that rates can’t go lower so they must rise eventually but when they do start rising the current thought is that they will rise slowly to keep the economy moving.
The problem with CREA is that most feel that they have a vested interest in putting out good news about the market so we must take what they say with a grain of salt.
Another Market indicator which is often used nowadays is the Teranet-National Bank House Price Index. Teranet is basically a Real Estate Futures market that compiles sales data to create an index for the Real Estate Market. While Teranet doesn’t in itself make predictions a careful study of the numbers can allow for some guesses as to where we are moving. Currently we are still seeing a steep rise in the month over month rise in the index. Usually before a crash or correction we would expect to see a gradual slowing and a mild decrease before the big drops as we saw prior to the 2008 drop. The suggestion here is that we are still on the upward side of market movement and we should continue to see upward movement for some time.
The problem here is that this is just a reading of market data. In good times market data reads good things and in a down market it reads bad things. In April, at the bottom of the market, analysts using this index were forecasting a further 20% fall in prices. They were obviously wrong so this index should only be used as a secondary source but lined up beside CREA it seems to give a good indication of continued upward moment.
My money is on the bank.
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