Condo prices spark fears of "affordability" crisis

Greater Vancouver's condominium market is flashing warning signs, PricewaterhouseCoopers reports in its latest condominium market review, that have the consulting firm pondering whether it has reached a turning point.

Prices are reaching unaffordable levels in some areas, said Craig Hennigar, PricewaterhouseCoopers' vice-president of real estate advisory and transaction services. In downtown Vancouver, for instance, prices hit an average of $700 per square foot.

He added that sales in some sectors have been "substantially above long-term demand," such as the high-rise condo segment.

Hennigar said PwC has suggested Vancouver's condominium market might slow down, "now we're looking at the potential for a slowdown, not because of lack of demand, but the affordability crisis."

The results are in PwC's semi-annual review of Greater Vancouver's condominium market, which is based on data derived from projects that are being marketed or projects for which developers are seeking development approval up to May 31.

However, Hennigar added that there are also a lot of "mixed messages" in the market.

Immigration to B.C., he said, was much stronger in the last year than the provincial government's statistics agency BC Stats projected.

Hennigar said the Lower Mainland saw real wage gains in the previous year averaging six per cent, which give potential buyers more wealth to service mortgages.

Mortgage rates themselves remain at relatively low levels, he added, and the mortgage market has become more liberal.

Canada Mortgage and Housing Corp. will now insure 30-year and 35-year mortgages as well as interest-only loans, giving buyers the ability to borrow more money on the same income in order to get into the market.

Hennigar added that recent buyers have gained equity in their properties that gives them additional spending power, though he noted that those not in the market are "looking at a steep hill to climb" to get in.

"There are a lot of things going on in the marketplace that give us pause for thought," Hennigar said.

PwC's position is that the market has "reached an inflection point."

"Momentum is positive, but we seem to be cresting a bit of a hill in many cases [and] the question is are we at an inflection and are we going to go down the other side."

Hennigar added that B.C. is currently experiencing positive economic growth, which bolsters the housing market, and there are no signs of it slowing.

He added that Vancouver developers are "a pretty savvy bunch."

"There aren't that many of them, and they are very careful about what they do," Hennigar said. "They don't want to undermine their own marketplace."

Neil Chrystal, president of Polygon Homes, said that while the PwC report might show the potential for a future oversupply of units, developers probably won't build all of the projects contemplated or will build them at a slower pace than first indicated.

Chrystal added that condominium sales through the first six months of 2006 were stronger than sales during the same period of 2005, and very few units remain unsold among the projects that are under construction or in the pre-sales marketing phase.

"We remain bullish as long as the economy stays strong and we're an attractive place to live," Chrystal said. "We're attracting people from many places around the world [such as] the Middle East, people probably looking for a safe haven.

"It just seems that Vancouver has a lot of things going for it right now."

However, Tsur Somerville, director of the centre for urban economics and real estate at the University of B.C.'s Sauder School of Business, said there is potential for short-term shocks to the economy. Somerville said economic booms driven by infrastructure projects, such as the Canada Line rapid transit, tend not to last. He added that commodity prices tend to trend downward.

"We're in a good [commodity market] now; that certainly won't last," Somerville said.

Somerville said the outlook for real estate "depends on your time horizon."

"If my horizon [for holding an investment] is four or five years, that's a problem," he added. "If my horizon is 'I'm buying a house, I have a job and I'm going to live in this market,' then it's not such a problem."

Somerville said Vancouver's long-term fundamentals: the desirability of its location and strength of its economy coupled with a land supply that is constrained by the Agricultural Land Reserve favours an "upward path" for prices.

"But you get ups and downs in there," he added.

(prepared by Derrick Penner/Vancouver Sun)