Surrey had a billion-dollar building year, but will 2011 be the last in a long series of boom years?
Looking into the future is always a daunting prospect, but there are indications that the buoyant real estate market of the past decade is slowing. There are also concerns that house prices will begin to fall, aired publicly by the CEOs of two of the five major Canadian banks on Tuesday.
The challenge lies in the fact that, while housing inventory has been growing steadily, the ability of buyers to actually get into homes is diminishing. Interest rates remain low, and that has been a key factor in the real estate boom lasting as long as it has, but the wage levels of many would-be buyers haven’t changed in recent years.
At the same time, housing prices have kept rising, and other costs (notably taxes and fees to all levels of government, and food) have soared.
Comments by bank CEOs Gordon Nixon of Royal Bank and Bill Downe of Bank of Montreal came at an investor conference Tuesday in Toronto. Both stated that the Vancouver area is overrun with condos that will not sell quickly.They stated that condo prices are most likely to fall significantly, simply because of supply and demand.
The assessment figures released last week by B.C. Assessment Authority indicate that Surrey real estate values have risen over the past year, most notably in South Surrey, where there has been strong demand for luxury houses. Some of that demand comes from offshore buyers, who are immune to the ordinary workings of the Canadian economy as their money comes from elsewhere.
In much of Surrey, apartment and townhouse construction continues at a frenetic pace. Development plans that are being formulated in city hall for areas that will urbanize in the future have a large proportion of land earmarked for multi-family housing, and demand for that type of housing is clearly growing.
A big reason is that many younger buyers have simply given up on single-family housing, which is a misnomer these days anyway. Few homes built in single-family zones contain just one family. Many have suites, and some have a second suite in a carriage house above the detached garage.
These homes are on small lots, but they have big price tags. For those new homes priced over $525,000, as many of these are, the HST rises dramatically as well, making them even less attractive to buyers.
One factor that will likely boost demand in the short-term is the pending tolls on the Port Mann Bridge. I am hearing anecdotally that many people who work here and live on the other side of the river are looking to relocate, to avoid bridge tolls. The same holds true for businesses in other cities, when many of their employees live on this side of the river,
However, this shifting of locations is not enough in itself to sustain a building boom.
Real estate prices aren’t likely to fall dramatically. They rarely do. It takes time for softer demand to sink through to sellers. But caution in borrowing has never made more sense, and it’s a good time for would-be buyers to carefully calculate how much extra they could afford to pay, should interest rates go up or should their incomes be reduced.
As Downe said Tuesday, “The warning signs around the Canadian housing markets have been visible for more than a year.”
It doesn’t hurt to pay close attention to those signs.