Derrick Penner, Vancouver SunPublished: Thursday, November 20, 2008
The latest assessment from Scotiabank Economics predicts price corrections in the 10- to 15-per-cent range from peak to trough nationally, though Vancouver and B.C. markets - where prices soared highest - will see more significant drops.
And the reason, according to Scotiabank senior economist Adrienne Warren, is that Canada's markets are into a cyclical decline driven by unaffordable prices pushing too many buyers out of the market, and now a softening economy.
She added that it is different from the American decline, which was driven by a glut of home foreclosures on the market due to sub-prime mortgage failures, followed by the U.S. economy falling into recession.
"I don't think we have the kind of risks that initially drove down the U.S. housing market," Warren said in an interview, "so I don't think [Canada] is going to mirror what has happened there."
Warren's assessment, in her Real Estate Trends report released Thursday, follows from forecasts by the Canada Mortgage and Housing Corp., B.C. Real Estate Association and Central 1 Credit Union, which forecast B.C. prices to fall between nine and 18 per cent before bouncing back.
Warren added that while nationally, prices will likely decline in the range of five per cent next year, B.C. market declines will be more like 10 per cent, so overall "will be a little more than 15 per cent [to the bottom]."
High inventories of unsold homes in B.C., she added, are one of the risks in that could push prices lower, as well as in the Saskatchewan markets.
Warren said prices will likely remain flat for a number of years while the affordability of housing "reaches a point that people can get back into the market."
The Scotiabank forecast is based on the assumption that B.C. and Canada will follow its current economic course. Warren said Scotiabank's economics department believes the country is entering or already in a mild recession.
However, she added that there are "almost daily" reports that downgrade projections for global growth, and if the biggest risk to her own forecast it would be a more significant economic downturn.
The Scotiabank report noted that Vancouver had the highest average housing prices in the country at $592,658, compared with Calgary with the next highest at $402,267.
Warren said those prices are averaged over 10 months, though. Vancouver's average price peaked in February at over $630,000, and by October had fallen to almost $552,000.
However, on balance, home-price appreciation in Canada has been less than in a number of major developed nations over what has been a 10-year housing boom. However, it did outpace the U.S., where prices rose 50 per cent compared to 61 per cent in Canada over that time period.
The run-ups in Ireland, Britain, Spain, France and Australia all exceeded 100 per cent.
However, the driving forces behind the price appreciation as well as current supply and credit conditions are more important than just the run-up in prices, the Scotiabank report said.
And the Scotiabank report noted that with sales, prices and residential construction in 2008 running below their peaks, "Canada's longest housing boom of the post-war period has come to an end."