While Canada’s banks are tightening lending standards in a move to avoid a U.S.-style housing correction, experts say Vancouver’s robust housing market isn’t expected to face a severe price correction.
Canada’s banks are in talks with the federal government about ways to curb mortgage lending in response to a “genuine concern” about the country’s housing boom and rising consumer debt levels, said TD Bank chief executive officer Edmund Clark.
“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” said Clark.
Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.
“I think there’s some concern that prices don’t get so far out of whack that there’s a substantial correction,” Somerville said. “All you have to do is look around and you’ll see that if [a substantial correction] does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
The Bank of Canada is trying to reduce the exposure to mortgage debt and put the brakes on the housing market without using “really, really big hammers,” like raising interest rates, Somerville said.
“The government has already taken steps to control mortgage lending through its regulations and I think there’s a wariness about tightening those too much, so they’re encouraging the banks to look at their mortgage book more closely.”
With immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.
- from ‘Vancouver’s housing market unlikely to face significant price correction: expert’, ‘Bloomberg, Reuters and Vancouver Sun’, 10 Feb 2011 [hat-tip MM]
“Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
Well said sir! — if you’d made that statement 7 years ago, that is.
To hear this said now, suggesting we shut the door after the very last of the frail and decrepit horses have been dragged and shovelled out of the proverbial stable, is just simply beyond belief. “Cheap and easy-to-access money” is precisely what has driven the Vancouver housing market, since as far back as 2003 and very definitely since 2006. Thirty, 35, 40 year mortgages; ‘Emergency’ low interest rates; Very low down-payments; Cash back offers; No-income-verification loans; HELOCs as down-payments; Mispriced insurance care of CMHC; etc. Cheap money and easy lending is the stuff of which our bubble is blown.
The Vancouver RE market is, first and last, a speculative mania driven by locals overextending themselves with cheap borrowing. When it turns, there will be nothing but fresh air between these price levels and those supported by fundamentals, far, far below.
And, yes, that will result in “a big problem”.
Out of interest, here is a page from the UBC Centre for Urban Economics and Real Estate at the Sauder Business School website: