Is Vancouver due for a home price correction in 2016? from @BIN
As the Vancouver real estate market reaches new heights, TD economists warn the city’s house prices are due for an imminent price correction.
“It would not be extraordinary for Vancouver to suffer a price correction on the heels of the sharp acceleration recorded over the past year,” economists Derek Burleton and Diana Petramala concluded in a July 30 report.
The pair pointed to unexpected benchmark rate cuts made this year by the Bank of Canada as one major reason Vancouver and Toronto have seen real estate demand accelerate even in the midst of a cooling economy.
The cuts lowered the rate of borrowing at banks, making affordability more viable for homeowners.
“But as affordability continues to erode, sales activity will likely cool heading into 2016,” the report said.
“In Vancouver, a pull-back in sales projected for next year might seem large, but it would follow two years in which sales rose by almost 50%.”
A July report from Royal LePage found the average price of a detached home in Vancouver sat at $1.2 million in the second quarter, up 12.6% compared with the same period a year ago.
The agency noted supply for detached homes is limited in the city, which is likely to keep demand high.
But the TD report noted valuation could drop as housing affordability falls out of reach, as dictated by price-to-income ratios.
“Current readings suggest that home prices in both (Vancouver and Toronto) would need to drop by a stunning 40% to bring these ratios back in line with the long-term trend,” the economists said.
Full article here: https://www.biv.com/article/2015/7/vancouver-due-home-price-correction-2016/