Is it really a buyer’s market in Vancouver if house prices are still rising?

The Real Estate Board of Greater Vancouver (REBGV) is heralding a buyer’s market in Vancouver, but if prices are still going up, how can this be true?

The following is part of an article written by Harvey Enchin for the Vancouver Sun:

A buyer’s market is loosely defined as a market condition in which supply exceeds demand.

So, the REBGV was technically correct in declaring Vancouver a buyer’s market this week. Sales of houses, townhomes and apartments dropped 27.6 per cent last month to 2,362, units from 3,262 in June 2011.

While it may be true that buyers were presented with more choice and faced fewer rival bidders than a year ago, the fact that sales volumes were down is meaningless without an accompanying downward adjustment in price. And that hasn’t happened.

Metro Vancouver prices were up on average by 2.6 per cent from January to June, while West Vancouver and Whistler were up 7.1 per cent. In fact, the benchmark price for a detached home in Vancouver is up 3.3 per cent from a year ago to $961,600, or roughly 14 times the annual median household income. The average ratio of house prices to median income in Canada at the start of 2012 was 4.6 times.

Just because the real estate industry has heralded a buyer’s market, doesn’t mean it’s time to buy.

CREA’s forecast earlier this year called for a slight dip in property prices in 2012 — which is looking increasingly unlikely — and a rebound in 2013. However, TD Bank sees a price decline of up to 15 per cent over the next two to three years.

Academics who specialize in real estate finance — namely Tsur Somerville at the University of British Columbia and Andrey Pavlov at Simon Fraser University — are on record saying price changes won’t happen overnight. It might take six months for sellers to lower their expectations. Neither deigned to declare the current state of affairs a buyer’s market.

Eventually, tighter mortgage rules, high household debt, rising interest rates, overbuilding of condominiums and townhomes, and a slowdown in offshore investment will begin to bite and prices should start to decline.

The economic model of supply and demand is supposed to be a determinant of price, so unless practitioners of the dismal science have got it all wrong, the price of real estate — even in Vancouver — should soften sooner or later. Probably later.

One can understand the real estate industry’s hope for a buyer’s market — its members need sales to earn a living. But existing conditions in Vancouver, and other places in B.C., constitute a buyer’s market only if money is no object.

Source: Harvey Enchin, Vancouver Sun

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