The Vancouver Sun ran an editorial this weekend about the ‘firm foundation’ of the local real estate market. The gist of the piece is that people should not panic over last weeks declaration that the Canadian housing boom is ‘officially over‘.
Compare Canada’s situation with the horror show south of the border and beyond. American homeowners from Blaine to Maine have witnessed the value of their property go down almost as quickly as it went up. The median price of a single-family resale home fell 8.7 per cent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors. Some cities, including Miami and Las Vegas, have reported declines approaching 20 per cent, which is widely expected to be the U.S. national average price drop in 2009.
Let’s not compare too closely to the American market though, because if we did we might worry about the recent increase in listings. In the US prices continued to increase as listings grew, unfortunately as soon as the trend changed and appreciation stopped people were less interested in buying and the bottom fell out of the market.
I do appreciate the assertion that the ‘firm foundation of the local market lets it weather boom-bust cycles’. What else is the local market supposed to do, disappear? We’ve weathered many boom-bust cycles and we’ll weather many more, the only problem is that ‘firm foundation’ can turn out to be a lot further down than some people expect. We survived 50% drops in the early eighties and lesser drops in the nineties but that doesn’t mean that buying at those peaks was a great investment.
I guess the point of the editorial is this: Don’t panic, because the local market won’t crash for at least a year:
The bad news, according to the IMF, is that real house price movements tend to lag cyclical peaks and troughs — generally by one or two quarters, but in Canada’s case as many as six quarters. In other words, the collapse here may be a year to 18 months away. According to the Canadian Real Estate Association, sales dropped 13 per cent in the first quarter of 2008 from a year earlier and the ratio of new listings to sales stands at a nine-year high.
