February 11, 2013

There Is No Bubble

2013 forecast: Another business-as-usual year for housing in B.C. and Metro Vancouver.

ANNE McMULLIN, President and CEO, Urban Development Institute

About a year ago, in January 2012, I read an article in Maclean’s Magazine entitled What happens when Canada’s housing bubble pops? “The signs of a bubble are unequivocal,” the author wrote. A year later, the same magazine released another article: Great Canadian Real Estate Crash of 2013: The housing bubble has burst, and few will emerge unscathed. Both articles attempt to make a tenuous link between the emotive and provocative titles that they carry and the reality of facts on the ground – particularly as far as the Vancouver housing market is concerned.

So what exactly did occur in the Vancouver housing market over the past year and what does a “burst bubble” look like, as bearish commentators such as Maclean’s like to suggest? More importantly, for new homebuyers, what can you really expect to see in the Metro Vancouver market in 2013?

The latest BC Assessment values released earlier this month indicate that almost every municipality in Metro Vancouver demonstrated gains in assessed residential values for 2012. Residential assessment values in the City of Vancouver increased by 2.2 per cent, in the City of Burnaby they increased by 3.99 per cent, in the City of Surrey values increased by 5.15 per cent and in the Township of Langley values increased by 3.13 per cent.

However, the City of Richmond did not follow the trend of increasing values across Metro Vancouver in 2012, and experienced a decline in overall assessed values of 0.64 per cent – hardly a bubble bursting by any measure. As well, a very marginal decline in the value of some high-end single family homes in that municipality masks the fact that the assessed value of condos in Richmond has actually increased by up to 5.1 per cent over the course of 2012.

What remains clear for current and future homeowners in Metro Vancouver, is that the underlying fundamentals of the housing market remain strong. Homeowners in 2013 are receiving assessments confirming that the value of their properties continue to increase incrementally, and at the very least, are remaining stable. It’s slow and steady according to the BC Assessment roll for most of the Vancouver area.

The year ahead is likely to be a lot like the year just passed, in UDI’s view. Acknowledging that total home sales have declined in B.C. year-over-year by about 12 per cent (based on the latest available quarterly figures from Landcor Data Corp.), this has evidently not translated into bubble-bursting price declines. It has ensured, however, that price increases have been limited and will remain stable throughout 2013 in a more competitive and normalized market.

The Canada Mortgage and Housing Corp. (CMHC) – the Canadian government’s provider of mortgage insurance – also specifically addressed the bubble issue as recently as November 2012, saying: “Overall, demographic and economic factors continue to support the Canadian housing market including growth in employment and net migration.” Indeed, according to BC Stats, the net population increase in the province is approximately 43,000 each year and all those people will need a home to live in.

Meanwhile the urban development industry in B.C., which the Urban Development Institute represents, is building about 25,000 new homes annually. Should, for whatever reason, construction in B.C. slow and new housing supply fail to keep up with that demand, then upward pressure on home prices is more likely than any decline. Reliable signs point to a business-as-usual year for B.C. and Metro Vancouver housing. The bubble is non-existent. The sky is still there.

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