Tsur Somerville may be the director of UBC’s Centre for Urban Economics and Real Estate, but he gave a rather surprising answer when asked about the prospects for Metro Vancouver’s housing market in 2012.
“We start off by saying I have no idea,” Somerville told the Georgia Straight in a phone interview. For him, forecasting is a risky business because “you’re wrong more often, even if you’re intelligent”.
An economist who earned his PhD from Harvard University, Somerville said that he prefers to evaluate what others have projected for the new year.
“The general trend seems to be that it’s going to be a slower market than 2011, and I think the combination of lingering economic unease and uncertainty is consistent with that,” the UBC academic explained. “The other thing is 2011—if you take away Richmond, the West Side [of Vancouver], and West Vancouver—was not some amazing prices-going-through-the-ceiling kind of year. In general for most places, things are going to look like 2011. Maybe a little bit slower.”
Asked about the biggest risk to the market, Somerville responded: “The economy, the economy, and the economy.”
He referred mainly to global hazards like the financial crisis in Europe and the lingering malaise in the U.S., although some recovery has been observed in the American economy. “The other thing, and it’s tied to that, is people’s concerns about their own debt loads,” Somerville said. “The more you’re worried about your debt load, the more you’re worried about the economy.”
Another economist interviewed by the Straight also doesn’t anticipate any major surprises in 2012.
“I don’t see any major drop in the housing market,” Helmut Pastrick said in a phone interview. “I don’t see any major upsurge either.”
The chief economist for Central 1 Credit Union, the trade association for credit unions in B.C. and Ontario, explained what this means for both buyers and sellers. “If you’re a buyer, it’s going to be a reasonably good market,” Pastrick said. “Interest rates will remain low. If you’re a seller, perhaps it’s not as rosy as it might be, but again, prices will remain fairly steady. It’s not a bad outcome either for sellers.”
In early November, the Canada Mortgage and Housing Corporation issued its housing-market outlook for 2012.
The national housing agency predicts a moderate growth in demand for new and resale homes in the Lower Mainland because of the region’s growing population and steady job market.
According to CMHC, resales are likely to rise by nine percent in 2012, to 36,000 transactions.
It also anticipates that the annual average price for all home types will settle at $788,000 in 2011, which is 17 percent over that of the previous year. For 2012, the average price is forecast to increase by two percent to $805,000.
Before Christmas, a number of banks released their prognoses for the Canadian housing market in the new year.
Scotiabank anticipates dampened demand because of economic uncertainty, although low interest rates will continue to attract buyers. The Royal Bank of Canada expects the same trend due to high personal-debt levels.
TD Economics of the TD Bank Financial Group predicts a “tug-of-war action” in the Canadian real estate market between low interest rates and restrained prospects for economic growth. It expects sales on the national level to decline 2.4 percent in 2012 and 3.5 percent in 2013.
Bank of America Merrill Lynch believes that Canadian home prices are overvalued by up to 10 percent. It predicts a five-percent drop in home prices in the first half of 2012. According to the bank, the market is “showing many of the signs of a classic bubble”.
Although houses are expensive in Metro Vancouver, Central 1 Credit Union’s Pastrick doesn’t view the regional market as being in a bubble.
“A bubble in real estate or in any asset market usually needs to have a fair amount of speculation present as well as very easy money,” Pastrick said. “Money is cheap but not easy. It’s not easy for a person to walk into a lender and have a weak credit rating and obtain loans. Lenders are fairly conscious of the risks involved and they’re quite conservative.”