Announcer: “Is the Canadian housing market a bubble ready to burst, or is it steady as she goes? Finance Minister Jim Flaherty is warning Canadians against taking too much debt against the value of their homes, but the latest report from the Canadian Mortgage and Housing Corporation is dismissing those fears saying there is no clear evidence of a real estate bubble.”
Tsur Sommerville: “There is clearly a slowing down in the market you see an increase in the number of listings, drop in sales, all things that create less pressure on the market.”
Announcer: “According to the Real Estate Board of Greater Vancouver home sales were down 19% compared with this time last year.”
Helmut Pastrick: “The comparison to last year was heavily influenced by the change in the federal government’s mortgage insurance criteria which pulled forward a large number of sales into early 2011. So we’re comparing that high point to activity so far this year.”
Announcer: “But don’t get too excited, even though sales are down, home price indexes show a 4% increase in the price of a home in greater Vancouver. … The message to buyers, the economy is in reasonable shape, there’s a lot of supplier there, and interest rates are low. So just because sales are slumping don’t bank on prices doing the same.”
Tsur Sommerville: “We don’t have a sort of financial environment where people are looking at major financial corrections, you know, double digit increase in interest rates, or, you know, huge tightening of liquidity, that just doesn’t seem to be on the horizon, you know, to expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that.”
– from ‘No Bubble In Vancouver Real Estate’, Global TV, 16 May 2012
[hat-tip, and thanks as usual for the video archive, to Greenhorn.]
OK, predictions noted, for the record, namely:
1. Price drops of 10% or more are not to be expected.
2. Tightening of liquidity doesn’t appear to be on the horizon.
3. Again, No bubble.
We believe that the price strength predictions are extremely overly bullish, given the internal market action, and the national and global economic climate.
BTW, when Sommerville says “double digit increases in interest rates”, what does he mean exactly by that phrase?
Does he mean interest rates increasing to double digits or by double digits? – there is a massive difference.
Nobody, but nobody, is predicting the former: In fact, if we thought there was a chance of interest rates increasing to “double digits” we’d change our price predictions from 50%-66% off to 80% off. So, if Sommerville was implying that bears are predicting interest rates of 10% or more, he was just trying to make critics look foolish.
If interest rates rise by double digits, for instance from 3% to 3.3% (an increase of 10%), well, even such a small increase may be enough to speed a price descent.