BC Third Quarter 2010 Home Sales Forecast Continued Price Increases

On July 30, 2010, the British Columbia Real Estate Association (BCREA) released its Housing Forecast Update for the third quarter of 2010 stating that the BC housing markets are returning to typical post-recession demand patterns.

In it, they forecast that Multiple Listing Service (MLS) sales for BC are expected to decline by 7.0% to 79,500 units from the 85,028 units in 2009.

“A larger inventory of homes for sale has created the most favorable conditions for home buyers in more than a year,” said Cameron Muir, BCREA Chief Economist.

“However, the buyers’ market is expected to be short-lived as total active listings peaked in May and are beginning to wane, with more balanced conditions set to emerge in the fall.”

“Housing demand has fallen back to earth from its break-neck pace at the end of 2009 and is expected to more closely match overall economic performance over the next 18 months,” added Muir.

The overall average MLS residential price for British Columbia is forecast to climb 5.8% to $492,800 in 2010 from the $465,725 figure of 2009.

Muir went on to say, “The volatility in consumer demand characteristic of the past 24 months is expected to give way to more gradual improvement through 2011.”

The BCREA forecasts that overall BC residential sales will also increase to 83,400 units in 2011 from the 79,500 in 2010 and that average prices will remain almost unchanged at $489,500 in 2011 from $492,800 in 2010.

The association indicated that a slower than expected normalization of interest rates will temper erosion of affordability as economic output posts more moderate growth for the balance of this year and through 2011.

After a sharp pullback in new home construction last year, home builders are gradually increasing production to meet demand.

BC led the country in population growth over the last three quarters and with inventory of complete and unoccupied units expected to decline, builders are adjusting production to match supply with household formation.

Forecasting is like trying to hit a moving target. In each of the 1st, 2nd and 3rd quarter forecasts, the BCREA has consistently revised their quarterly sales forecasts downward throughout 2010.

“The moving target analogy is bang on,” said Vancouver mortgage broker Mark Fidgett. “In fact, I had that exact same conversation with a client today. I agree, sales will decline, but personally, I don’t see prices going up, if anything they will remain unchanged.”

“Having said that, I understand we’re experiencing a fair bit of new Chinese buyer activity,” added Fidgett. Mortgage rates on five year terms are also dropping below 4%, Fidgett explained, “lower rates won’t significantly impact affordability.”

However, Fidgett believes that the influx of “new Chinese buyer activity may be short lived as China is seeing it’s own real estate bubble as a result of massive state stimulus programs.”

When generalizing the market, Fidgett says that people (buyers) “have a tendency to see an action as more appropriate when others are doing it” and so these “people feel they will make fewer mistakes by acting in accord with social evidence and the social evidence right now is one of buyer’s retreating.”