Canada's Housing Bubble

Feb 05, 2010 Marco A. Murillo

A recent article by developer James Sclouw from the Canadian Home Builders Association draws some interesting notes and numbers about the situation of the market, nowadays.

His point of view is that the market, after a booming period of almost 7 years has already peaked, gone down and might be showing signs of recovery already. But even he is not optimistic seeing a real recovery, as the strength of current prices might weaken again past the Olympic Games. It seems to me that he could be advising that if home owners do not sell now, they will have to lower their expectations of income gains on real estate investment for the next five years.

There is an interesting mention on the forces applying pressure on the market. James believes that population growth alone pushes the prices up, but this factor alone is not the engine for home building. We might be experiencing population growth because of immigration, which in difficult economic times such as the ones we live in today doesn't really mean investment in new housing. Immigrants would rather pay lower rents and keep savings high instead of putting a down payment and assuming mortgage responsibilities when unemployment is at highs, they can't afford taking the risk.

The article mentions that under gloomy economic times, developers and speculative investors in real estate own thousands of vacant units. This is what is called the real estate inventory, the effective inventory is the number of new home seekers. How these two balance gives the temperature of the market.

James writes that the Real Estate Board of Greater Vancouver recorded 3,100 transactions in November 2009, an increase of 253% compared to 2008. Since the development industry has been slowing down from 2008 to date, the real estate inventory has shrunk dramatically. With population growth in BC reaching up to 92,593 for the last 15 months to July 1, 2009, the pressure on the market should be noticeable but, do the economic indicators like employment rate and wage increases support the acquisition of real estate for the first time? No too much, and that is what the prices are saying.