Response to TD Report Prediction of 15% Housing Price Decline Over Next 2 Years
Posted: Jul 27 2011 Topic:
July 27, 2011
The July TD economic report claims that “Restrained economic growth, higher interest rates, new mortgage borrowing rules and eroding home affordability help support our call for more moderate housing activity.” More moderate housing activity perhaps is a reasonable forecast, but a whopping 15% decline seems overboard.
While eroding home affordability in Vancouver is obvious, if demand is there, prices will not decline.
Speculation about the extent to which Chinese immigrants are propping up Vancouver’s housing market is rampant, though much of it is merely anecdotal data. However, according to a recent article in China Daily, 29 percent of all homebuyers in Vancouver are Chinese (both from abroad and landed immigrants).
The TD report appears to undervalue the potency to which immigration affects the housing market, which shows no weakness in slowing in the upcoming months and years. (The number of immigrants fell by a quarter during the first quarter of 2011 YTD in what is speculated to be resultant of a tighter immigration policy pursued by the Conservatives; however, 2010 was a record high year in the last 50 years.) And with the Chinese government imposing restrictions on housing ownership in China, many investors have been incentivized to purchase abroad, particularly in Chinese community-friendly Vancouver.
Furthermore, interest rates will likely remain low over this two-year period, as central banks around the world (including the Bank of Canada) will likely choose to maintain interest rates or very cautiously and moderately raise them. Inevitably, interest rates will have to rise, but central banks likely will not have the wisdom to do see in order to put a damper on inflation.
Overall, we feel TD’s report is unsubstantiated in its bold prediction of housing price decline. According to CMHC’s analysis, Vancouver’s MLS sales are expected to increase by 6% in 2011 and 9% in 2012, while the average MLS price will grow 14% in 2011 and a more modest 3% in 2012.
Additionally, certain regions, such as West Vancouver and the Westside of the City of Vancouver, are pushing the numbers upward in a skewed manner, whereby the majority of housing outside these areas has not gone up at the same rate. Investors in the abovementioned regions include a big mixture of international buyers, typically buying into Vancouver due to the scenery and charm rather than economic reasons.
Written by Pacesetter Marketing Inc.