Will the housing market for 2013 be better?

January 12, 2013

What do expect of 2013?

The drop in active listings in the last month of 2012 was dramatic. From around 17,700 at the end of October, active listings dropped to around 12,000 at the end of December, 2012. One-third of the listings disappeared from the MLS system, mostly due to expiry and some of these listings were terminated.

The chart below showed a clear trend of declining sales as far back as 2005. The decline in sales could be attributed to high home prices getting out of reach by home buyers. A smaller pool of buyers sustained the housing market and home prices until sometime around mid 2011.

It was clear that the housing market in Greater Vancouver was in decline. With just around 25,000 homes sold during the year, 2012 was not much better than 2008 when a seizure of the financial markets around the world caused a major drop in home sales in Greater Vancouver.

Greater Vancouver housing chart

Following the trend line  

Although the trend-line projection for home sales in Greater Vancouver for 2013 is showing a sale level around 29,000 units. This will not likely to happen due to the fact that there are major forces affecting the market for 2013. Tightened lending standards and negative market sentiment will likely result in home buyers staying on the side-line for some time. The probability of home sales for 2013 staying at current level around 25,000 units cannot be ruled out.

The pricing front for 2013

With weak sales and declining prices already in motion, further price decline is expected to continue. Home prices for condos have already declined and now hovering just above the 2007 price level. Some major news can be expected later this year on presale condo buyers not able or willing to complete their purchases.

The decline in home prices will likely to continue as the real estate down cycle is in motion. The market rally in home prices from 2001 to 2007 was extended due to massive cash injection by the Governments in early 2009. The current Government credit policy to engineer a soft landing is working to reverse the run-away and over-speculative housing market. If the complete cycle takes 6 to 7 years to play out, we could be in for another few years of price decline and low sale level.

Home prices are dictated by buyers, and in a buyer market price decline will continue until a large enough number of buyers are available to absorb the excess supply. A good indicator to watch is the supply/demand ratio or the MOI (months of inventory). When there are less buying interest and a high level of supply, home prices will continue to decline, until confidence returns to the market. We could be facing a 10% or more decline for the next 18 months.

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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