TD Says Vancouver Real Estate to Chill

Cooling

Aside from the woes of a less than stellar summer, a TD Economics Special Report has turned the air conditioner to its highest setting. Their market weather forecast is that Vancouver’s Real Estate market is about to freeze!

Highlights

Vancouver and Toronto to record a more significant cool down

  • market appears set for a moderate correction, with resale activity and average prices projected to decline by roughly 15.2% and 10.2%, respectively, over the next two years
  • subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first time home buyers are expected to be the chief culprits behind the slowdown
  • anticipate that the brunt of this adjustment will take place in 2012 and into 2013
  • Vancouver and Toronto look poised for larger-than-average declines over the next few years, reflecting in part their exposure to the condominium segment, which appears particularly ripe for a correction

Sales already off their peak

  • buyers moved to beat out likely interest rate increases on the horizon and changes to insured mortgage eligibility rules in the spring – much of the gains in sales recorded during this run up have since been reversed

Fundamentals suggest housing moderation

  • key drivers of housing demand will remain supportive over the rest of the year, but will become less favourable over 2012-13

Economic growth to be modest

  • GDP is expected to average 2.8% in 2011, before easing to 2.3% in 2012 and 1.9% in 2013
  • personal disposable income growth will remain subdued at around 3.8% over our forecast horizon
  • forecast growth is below historical trends suggesting economic activity should not generate enough momentum to sustain above average price and sales gains

Interest rate to rise

  • expect the tightening of monetary policy to now begin in January 2012
  • Gradual increases thereafter will take the overnight rate to 2.00% next year
  • the central bank is poised to further lift the rate to 3.00% by mid-2013

New mortgage rules took effect

  • changes were put in place to help slow the pace of household debt accumulation and include:
  • shortening the amortization period to 30 years down from 35 years;
  • reducing the maximum refinance percentage to 85% loan-to-value, which is down from 95%

Fewer first time home buyers

  • last home buying intention survey commissioned by the CMHC suggests this proportion is set to further decrease over 2011
  • seems to be saturation in the number of first time home buyers
  • tighter mortgage borrowing rules and interest rate hikes on their way, these buyers can no longer support above average sales and price gains

Soft landing in most regions – Toronto and Vancouver most at risk

  • weaker activity in their large condominium segments
  • run-up in sales and prices, and lack lustre economic growth will be primary factors leading to a larger than average housing market correction in the urban center of Vancouver and Toronto

*All Information Courtesy TD Economics Full Report Here Image Credit

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

ManfredSteyn Says:
July 15th, 2011 at 4:49 pm

You know its going to be bad when even the banks see it coming.

Jim Says:
July 15th, 2011 at 7:37 pm

Sigh,,,,only now the bank forecasts are credible to the bears because they’re negative. and what about those forecasts? Plus or minus 0.1? Come on!

sallysmith Says:
July 17th, 2011 at 12:15 pm

Ya…potential first time home buyers are starting to realize that it’s much, much cheaper to rent. And with the condo market not racing ahead in terms of prices, why rush in?

Reggie Says:
July 17th, 2011 at 6:09 pm

Cool down in progress?

Larry any coffee talk updates?

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