Are We Heading For a Housing Market Downturn?

October 14, 2012

marta.jpgThere are strong signs for a prolong market downturn.

The last real estate cycle started around 1985 to reach a peak around 1994. It was a good 10 years run where average detached home prices in Greater Vancouver was just around $100,000.

At it’s peak, home prices were at just over $420,000. The correction that took place was mild, reaching the bottom in 1998 with average price hovering around $360,000.

There were around 1,030 detached homes listed for sale with average monthly sale around 80 units. The months of inventory (MOI) recorded then was 12.9 months. The current supply/demand ratio for detached homes in Richmond is much worse than the beginning of the downturn in 1995.

The run up in detached home prices in Greater Vancouver from 2001 took another 10 years, rising from around $380,000 to about $1,300,000 at it’s peak in 2011. The increase in average home prices in Greater Vancouver during this period was around 3.5 times. Housing affordability started to become an issue as early as 2005. Declining sales since 2006 was the first sign of the crack in the housing market in Greater Vancouver.

 If home sales and prices continue to slide, it could take many years before the market stabilizes. Judging from the huge run up in home prices, the drop in prices on the way down could be just as severe. A market correction will take many years to reach a level when home buyers feel comfortable again to enter the market.  

In spite of many new homes being added to the market each year, sales decline since 2006 was an ominous sign the housing market is ripe for a fall. Strong buying interest from Chinese from mainland China, easy credit and irrational market sentiment continued to drive home prices higher until 2011.

We are now witnessing the unwinding of the housing market. The severity and pace of price decline are dependant on the interaction of buyers and sellers perception of the market. At current price point, getting financing for a family earning $65,000 a year with 5% down payment will allow the buyer to afford a home valued at $280,000 $294,000.

It will take many years before owning a home makes sense again. Home prices are not going up now or holding. Instead, the housing market is coming down in values. The rush to exit the market will take its toll on sellers who bought their homes recently.

Disclaimer: The writer assumes no liability whatsoever, for errors and/or omissions and any consequences arising either directly or indirectly from the use of information provided by this website. Any data provided are strictly for guidance and planning purposes only and may not be applicable due to ever changing market dynamics.

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