Shall We Expect a Housing Correction or Crash?2018-07-26 09:27:55 Posted By Amir Hamzehali
The housing stats are out once again! The Real Estate Board of Greater Vancouver stats for June 2018 shows a dramatic drop of 37.7% in residential home sales in compare to June 2017. For the same time period, the total number of homes listed for sale were up 40.3%.
This has created a great recipe for housing prices, especially for homes valued $2 mil and up, to be on a sharp decline. Seeing large home price reductions everyday and the homes selling much lower than their listing price have become a new norm in Vancouver’s housing market these days. In some areas and for more expensive homes, the prices are down by 15% or more from its pick in 2016/2017.
The current housing market conditions make the 2008/2009 housing market slowdown during the economic recession to look good! The housing graphs show a sharper drop in sales volume and a faster increase in housing inventory for sale in compare to what we experienced a decade ago. The extend of damage to people’s wealth is much worse this time considering the property values being in average 2 to 3 times higher since then.
Two important factors, one being declining interest rates and the other being the inflow of capital from other countries, saved our housing market from a crash in 2008/2009, thanks both to the low inflation rates and the investors taking advantage of our cheaper real estate prices.
This time around, the interest rates are on a rise and not much of the foreign capital is pouring into our real estate market, thanks both to the increasing inflation and the foreign governments making the outflow of capital more difficult or impossible!
What we are experiencing in our housing market today has been planned by the Government to avoid a housing crash in future in case of economic slowdown or a sharp rise in interest rates. At the same time, the Government wanted to increase the housing affordability for the average people.
So far, the Government should have noticed that its policies, after almost a year, hasn’t helped the market to become more affordable for the young people and the first-time home buyers. The stress test and the rising interest rates have lowered the purchasing power of the young people by almost 25%, while the housing prices in lower end of the market that is the entry level for the young people are down by small amounts. The housing stats also confirm this fact by showing that the largest drop in housing demand and mortgage initiation comes from the young families.
The Government policies not only hasn’t achieved the goal of making the housing market affordable, but also have increased the risk of a market panic and a housing crash as a result.
We never had the three levels of the Government to act spontaneously at such extend to control the housing market! It’s quite obvious that non of the levels of the government has any desire to make the housing market affordable by causing the prices to crash.
The good news is that our economy is still doing good, and all these policies and restrictions by the Government are reversible. The expectations are that the Government acts quickly before things go out of hand.
Hopefully next time, we will witness policies that are more focused on building affordable housing for our young families and the policies that would improve their income rather than policies that might bring down the whole housing market!