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Vancouver red hot in our ‘Goldilocks’ housing market

Vancouver red hot in our ‘Goldilocks’ housing market

Vancouver’s already hot housing market got even hotter in May, enough to once again skew national averages, the Canadian Real Estate Association said yesterday.

Ottawa-based CREA, which represents 100 boards across the country, said the average price of a home sold across the country last month was $376,817, an 8.6% jump from a year ago. Remove Vancouver from the equation and prices are up only 5.6% on a national basis.

Canada’s most expensive city for housing led the charge with the average sale price of a home in May coming in at $831,555, a 25.7% increase from a year ago. The pace is picking up because in April year-over-year increases were just 21% in Vancouver. Still, prices have risen faster in this cycle with March 2010 seeing a 31% average price increase on a year-over-year basis.

“Quite simply, no other city in the country is seeing anything remotely close to what’s unfolding in Vancouver. In fact, many large cities have posted price declines over the past year, notably Calgary, Edmonton and Halifax,” said Doug Porter, deputy chief economist with Bank of Montreal. “Among the other largest cities, only Toronto is showing anything close to overheating, and its 8.7% year-over-year price gain seems to fall well shy of bubble territory. Canada’s housing market appears to have enjoyed a healthy (but not too healthy) spring selling season, largely undeterred by generally lousy weather and the new tighter mortgage insurance rules. Most markets appear well balanced and unremarkable. Then there’s Vancouver.”

While not as hot as Vancouver, as a much larger city Toronto’s year-over-year price increase also helped skew the national number. Remove Toronto as well from the national equation — the average sale price reached $485,420 in the city in May — and prices nationally are up just 3.7% from year ago.

In fact, CREA says markets are balanced in most parts of the country. “The Canadian housing market has seen some ups and downs in recent years making national sales activity so far this year look like something out of a Goldilocks story by comparison — not too hot, not too cold,” said Gary Morse, president of CREA.

Gregory Klump, chief economist with CREA,  said the Vancouver market continues to be impacted by the sale of some higher end homes. He said if you look at the median price of single detached homes in Vancouver last month, prices are up 17.4% compared to a 26.2% average price.

“Average price is being skewed upward and has far overstated prices by record level sales of multi-million homes,” said Mr. Klump.

Phil Soper, the chief executive of Royal LePage Real Estate Services, says Vancouver’s price increases are “completely unsustainable” and it is only just a matter of time before prices come down.

“The prescience of cash oriented investors has sustained the market longer than it would have been possible otherwise, it won’t go on for an extended period of time,” says Mr. Soper, predicting a correction. “Look at what happened in 2008-2009, Vancouver led the way down. It is our most volatile housing market. It is prone to severe swings, both up and down, that other parts of the country have never experienced.”

While there is very little data to back it up, many in the real estate industry maintain Chinese investors faced with more restricted tax measures on housing back home have been looking in Canada, most notably Vancouver to invest. The Office of the Superintendent of Financial Institutions is said to be studying the market, in order to stress test the banks for how they would be affected by volatility.

Mr. Soper says not to worry, eventually Vancouver real estate might even become too expensive for foreign investors. “Satiated demand and affordability will impact them. These are business people. They’ll say it’s gotten too pricey,” he said.

SOURCE:National Post