Tsur Somerville, who holds a real estate foundation professorship at the University of B.C., expects prices to stay flat for a while “because our prices are high relative to what people think they should be,” Somerville said. “Our price adjustment will come from prices being flat for awhile and letting income catch up to where prices are.”
If there was a large number of unsold units coming onto the market or a huge change in the economic environment, Somerville said, “that would really cause prices to tank.”
“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?”
For prices to go down significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”
None of those conditions appears imminent.
Somerville said it would take “some negative shock,” such as an economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.
“As home sales continue to plummet in Vancouver, it wouldn’t be surprising to see 10-per-cent price declines next year." That’s the view of University of B.C. real-estate economist Tsur Somerville, who was asked to respond to new market forecasts released by the B.C. Real Estate Association.
On Tuesday, BCREA chief economist Cameron Muir said tighter mortgage rules implemented by Ottawa this summer triggered a 20.5-per-cent drop in Vancouver home sales, in a market that was already softening. The plunge in sales will cause a six-per-cent price decline in Vancouver’s average home price, Muir said, to $734,000. The association sees sales rebounding by 13.7 per cent in 2013, but predicts prices will slide by another two per cent, to $720,000.
These declines should be seen in the context of unrealistic gains in 2011, Muir said.
"(Somerville) expects prices to be more or less flat in 2014."
Right now, buyers seem content to sit on the sidelines in Vancouver, but people expecting to win massive discounts a few years down the road will be disappointed, Muir says. “We don’t see a recession on the horizon, and we don’t see interest rates going up any time soon, so what kind of financial calamity is going to happen in Vancouver to get people to sell for 75 cents on the dollar?” Muir asked.
Click 'comments' below to contribute to this post.