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House price plateaus sign of future strength

Blog by Ian Watt | November 22nd, 2006

House price plateaus sign of future strength

Published: Saturday, November 11, 2006
At MPC Intelligence, we have been tracking new-home-project sales since July. For the first time, we are seeing small corrections in some areas of Greater Vancouver. In those areas, supply is outpacing demand.

We think the Lower Mainland real estate market will continue to move forward with strength and certainty and, further, fluctuations currently seen in the marketplace will be of short duration. The fundamentals remain strong.

Changes in sales activity throughout the Greater Vancouver market have created a raised level of buyer uncertainty for both the resale and new-housing markets.

Recent surveys demonstrate that while some caution is warranted, the local real estate market will continue to move at a stable pace.

Questions on the continuing health of the real estate market were ignited by reports that real estate has ceased to escalate at the same pace as it did in 2004 and 2005.

This is true, but while some take this as an indication of a bursting bubble, present activity indicates plateauing of price escalations and absorption are strong signs of future strength.

The reality of the market is that it cannot continue to escalate in a straight line. (The longer it does, the more likely we will see a bubble.) Levelling off of sales volumes and absorption allows the market to return to more normalized conditions.

For those looking to purchase homes or condominiums, this allows for added time to survey the market before making buying decisions.

For those wanting to sell, this means their homes may sit on the market for a short period of time. (It should be noted that the market is still very much a buyers' market).

Inconsistent activity in new development throughout Greater Vancouver locales has led to a raised level of uncertainty for both the resale and new housing markets. This inconsistency is the result of submarkets moving at various paces.

Areas such as New Westminster, south Surrey and Maple Ridge have experienced a slight cooling in sales volume. On the other hand, the markets of North Vancouver, Burnaby and Abbotsford have noticed expedited sales and increased pricing.

Over all, the market continues to move at a consistent pace; however, we anticipate that we will see more differences between submarkets in pricing and sales absorption.

Developers can avoid less favourable conditions through proper timing and release of new real estate entering the market.

Areas with large amounts of new developments simultaneously entering the market will, in the short term, experience declines in sales volumes. Areas with staggered releases will continue at a predictable and stable pace.

Regardless of the short term fluctuations in the market, the overall health of the industry remains strong.

Sales pricing and absorptions continue to surpass previous performance records and the short-term investor has become far less active in today's market. The "supplier'' performance and the ''buyer'' performance suggest stable but not rapid growth for the future.

Perhaps the strongest indication of a continued healthy market is in the evaluation of new developments released in the last two months.

Since Labour Day, local developers and builders have released just over 3,800 residences to sale in 43 developments. Eighty per cent of that has been in the form of apartments; 19 per cent, townhouses; and one per cent single family detached.

Of the more than 3,800 homes released since Labour Day, only 38 per cent of them remain available.

Within the entire market, in all product types, barely 21 per cent, or a little over 4,200 homes, remain available for purchase.

These numbers mean just over one-third of all available real estate on the market has been available for purchase for 60 days or less.