We’re currently in the midst of a good run of scary articles and projections about the impending crash of the Vancouver housing market. It’s becoming a first of the month ritual to read fresh stats about dreary sales numbers compared to this time last month, or last year. Here’s the latest:
February home sales were 42.5% below the 10-year sales average for the month. There were 1,484 home sales last month, which is a 32.8% decrease from February 2018 – but, for the optimists, a 34.5% increase from January.
January’s home sales were the lowest level in that month in 10 years. The Real Estate Board of Greater Vancouver blames the slump on the strict mortgage stress tests that were enacted last year by the federal government. They claim that, combined with the increase in mortgage rates, the tests took away about a quarter of the purchasing power from potential home buyers.
This is all pretty dire – but we still live in a region that’s valued for a very good reason. We can’t do sprawl here like in most other metro regions. People live here for the weather, the mountains and the ocean - and once you get too far east, you may as well live in Toronto.
I don’t think we need to fear any kind of traumatic housing crash here. Housing values can only fall so much. Look at the costs – you just can’t build houses for much cheaper. It’s still going to cost between $500,000 to $600,000 to build a detached home of about 2,000 square feet. The kind of home I grew up in. It’s at about $250/square foot right now. So existing homes here have a base-line, intrinsic value, just based on the replacement costs. You may see single digit percentage points of value loss over the next year or several years, but that’s not a crash. Double digits are crash level, and we’re not going to see that, I don’t believe.
I would point out that In the U.S., the housing crash came from a market where the cost to build was around $100/square foot, and homes were retailing for $250/square foot. We’re not seeing that here, and thus we can rein in our fears of a similar crash.
We did have a crash here in Vancouver in the 80’s, where people were just walking away from their mortgages because the interest levels were so high. Construction stopped almost completely for a few years there in the early 80’s. But the population growth alone here will negate that. There’s like a thousand people a month moving in to Surrey alone. You can measure supply in terms of months of inventory. Right now, there’s about five months of housing supply in Surrey. So in five months, if you’ve sold every home, you’re back to the same problem, and housing prices will spike again. You’ve got to keep up with the demand by adding new homes, or people will stop moving in. There’ll just be nowhere to go.
