Are Housing Prices in BC Going to Level Off?
By Laura Neufeld

As anybody who has lived in, visited, or even just mentioned the province of BC at any time in the past few years knows, housing prices in BC has risen astronomically in recent years. The number of housing starts in the province has more than doubled in the past five years – from 17,234 in 2001 to 36,443 in 2006. The average price of a residential home in British Columbia rose from $220,952 to 401,047 in the same five-year period.

BC’s booming economy has borne most of the blame (or praise, depending on how you look at it) for the increase. The low interest rate has also paid a significant role. However, the meteoric rise of the market in BC has also led many to speculate that it is sitting precariously close to the edge of an oft-dreaded housing bubble. 2006 saw double digit increases in housing prices and starts, but 2007 appears to be slowing down. So, is the housing market in BC on the verge of finally correcting itself?

The verdict is still out, but the majority of people are predicting a leveling off of housing prices. According to Credit Union Central BC, January’s housing starts dropped 14.3 percent, to an annual pace of 1.4 million – the lowest in nearly ten years. The number of properties on the market is also increasing, which means that it is slowly becoming a buyer’s market.

“I think we’ve reached the peak of the most recent cycle, and if history repeats itself there will be a period of modest nominal price increases, but real price declines that will last a couple of years,” said Associate Dean of the University of British Columbia’s Sauder School of Business, Robert Helsley, to CTV’s “Olsen on Your Side.” However, many of the factors that influenced the market upswing – such as a booming economy, relatively high immigration numbers, and low interest rates – are still in place, so we should not expect a significant drop in price. Canada’s west coast, specifically cities like Victoria and Vancouver, is still seen as a very desirable place to live by many in more extreme climates.

People’s perceptions of the market also play a significant role. It’s the classic chicken and egg conundrum – if everyone thinks that the market is on the rise, people start to panic, and want to get in on the action as quickly as possible, before prices rise any more. The surge in buying causes the market to increase faster and higher than it may have otherwise done. On the other hand, if people expect the market to crash – or even just level off – in the near future, they may be more cautious in their purchasing decisions and hold off, leading to a flooding of the market with homes.

We may be seeing a little bit of this phenomenon now. Rick Valouche, president of the Real Estate Board of Greater Vancouver has said that “we are currently seeing double-digit increases in both our new and carried-over listings inventory.” When you ask many people on the street what they think of the current housing trends, many comment that they think it is cooling off.  

The BC government just released their provincial budget for the 2007/2008 fiscal year, and with it they announced significant housing allocations, not least of which was a change to the First Time Home Buyers Program. Its threshold has been raised from $320,000 to $375,000. Just what effect this will have on housing in the province has yet to be seen. However, any positive effect it may have could be negated by the drop in the housing market south of the border, which many say will have a detrimental impact on the BC economy, especially the forest products industries. And a downward swing in the economy is the one thing that could seriously alter the course of the housing market in BC for the next few years.