Something I’ve noticed over the years is there are two sides to every coin and as such there are two arguments being made regarding the supposed housing bubble here in Canada.
I’ve read reports from economists and banks indicating there is no bubble here. The conditions that created the economic collapse in the US simply don’t exist here. We had a VERY small (less than 5% if I remember correctly) subprime mortgage market in Canada, thanks to Paul Martin. The banks approached him, and asked for a loosening of the lending restrictions so they could compete with the American banks in the subprime market, and they were turned down. As such we haven’t ended up with the junk debt the banks down south got saddled with, or the huge numbers of people owing more than the house is worth, therefore willing to walk away.
We also haven’t seen the excessive runaway growth like we saw in the states due to the subprime market. These are optimal bubble conditions. Some people have been claiming Canada is in a housing bubble primed to burst since 2008 when things went sideways. 6 years of naysayers predicting a future that has yet to come.
Generally when I want to see what’s coming I look behind me. I’ve attached a graph I have put together showing the average sale price of a house in Victoria every year since 1978 (to 2013). I’ve attached it for your reference. In the early 80’s when interest rates hit 20%, the values fell by about 25% in Victoria, but from the peak before the fall, to prices being back where they were before the fall took about 3 years. If you look at the graph, it has a pattern, and rhythm. And too me it looks like we’re at the top of the last aggressive climb, after the pull back (soft landing) and in for a protracted period (5-8 years)of relatively stable (2% +/-) real estate pricing.
Victoria has some factors that have, and will continue to influence values here. If you look at a basic supply and demand model of business, we have a limited supply with water on 3 sides, and the malahat on the 4th, and an ever increasing demand caused largely by an ageing population of baby-boomers, starting their retirement cycle, who have sold their souls in places like Edmonton, Calgary, Toronto etc, and are moving out to the most temperate climate in Canada. Victoria is consistently rated the best climate in Canada to live in, it has the most annual sunny hours of any coastal city in Canada, with great outdoors activities, it is, essentially, del Mar north.
For these reasons I don’t see a bubble or a dramatic decline in pricing in Victoria. We have seen a shift here from a buyer’s market to a balanced market (although only just) which will stabilize prices. As a rule prices hold in a balanced market, recede in a buyer’s market, and climb in a seller’s market.
Having said all that I don’t have a crystal ball. If I did I’d be buying lottery tickets. I don’t see any aggressive movement in either direction for years to come but time will tell.