What’s next after the spring surge in housing activities?

July 2, 2009

The spring surge in housing activities lifted home prices and reversed the downward price decline for detached homes, townhomes and condos. The housing price reversal over the past 3 months was clearly illustrated by Brian Ripley’s housing price chart.

The surge in sale over the past 3 months helped to reverse the downward slide in home prices. In fact, the strong sales had resulted in home prices gaining ground and recovered some of the losses over the preceding months. The supply of new listings was not keeping pace with the sales, resulting in the Richmond housing market tipping back in favour of home sellers.

Projection for the second half of 2009

The sales activities as provided by Housing Analysis dated June 03, 2009 showed declining sales for the second half of the year for the past 4 years. If the same pattern is going to be repeated this year, we can expect a decrease in sales activities. The recent spike in the best 5-year fixed closed term mortgage rate from 3.79% to around 4.45% presently will tamper buyer interest. This coupled with the lack of new listings at competitive market prices, will bring moderation and balance back to the market.

Richmond’s housing market is expected to become more balanced, when buyers stop chasing the market. Buyers were buying homes over the past few weeks at a frantic pace, and many homes were receiving multiple offers.

A moderation in sale is expected to come about due to seasonal factor. New listings and existing homes will take a longer time to sell. The expected easing in buying interest may result in home prices flattening out. Some home sellers will reduce their price expectation when buyer interest decreases, resulting in lower selling prices.

Are we in a down real estate cycle?

There is a distinct possibility that the surge in home prices may reverse as happened elsewhere in North America as illustrated here from a chart provided by Housing Analysis dated June 03, 2009 “Vancouver Benchmark versus Case Shiller Update“.

Rising interest rates and a sluggish economy will negatively impact housing demand and home prices.

Canadian economy forecast – slow recovery

Canadian housing market is tied to the health of the economy. A recent article by The Vancouver Sun dated June 30, 2009 “Canadian economy ‘not out of woods yet” high-lighted some of the problems faced by Canadian manufacturers.

“Further signs of an economy struggling to prosper were found in data showing manufacturers getting caught in the squeeze between rising costs for materials and prices for their products driven lower by a strong Canadian dollar”.

We will continue to monitor the Greater Vancouver housing market.

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