Despite some pessimism, the Vancouver housing market isn't about to crash

We'd never be so bold as to call the top of the market, but there were signs this week that some of the froth is blowing off the housing bubble.

The first came from RBC Financial Group, parent company of the Royal Bank. Its annual homeownership survey found that the number of Canadians who say they are "very likely to buy" a home in the next two years has dropped to 10 per cent from 13 per cent a year earlier. The decline was even sharper in British Columbia, where 11 per cent of those surveyed said they were very likely to buy, down from 16 per cent. A telling statistic is that only 15 per cent of Canadian renters said they planned to buy within the next two years, compared with 20 per cent last year.

Another indicator came courtesy of Canada Mortgage and Housing Corp., the Crown corporation that insures mortgages in excess of 75 per cent of a home's purchase price. CMHC said it will now allow borrowers to amortize a mortgage over 30 years, instead of the long-standing maximum of 25 years. That move sends the message that first-time buyers, who are the lifeblood of the housing market, are drying up. Houses have become so expensive that monthly payments on a 25-year amortization are too high, especially for first-time buyers with the minimum down payment, and CMHC thought it necessary to take desperate measures to keep them from abandoning their dreams of home ownership.

It was also belated recognition by CMHC that it's in a fight for market share in the high-ratio mortgage business against a private lender, Genworth Financial Insurance Co. Canada, formerly GE Capital Mortgage Insurance. But that's another story.

In Greater Vancouver, real estate sales dipped about four per cent in February from the same month a year ago. With the average price of a single family home in Greater Vancouver at $705,141, perhaps sticker shock is finally taking a toll.

After all, in London, England, where the best property deals were scooped up in the 1850s, the average cost of a house is only $475,560, up two per cent in January amid predictions of a seven-per-cent gain for all of 2006, with some real estate agents already citing the Olympic effect (London is hosting the 2012 Games).

Measured against London, and taking into account the inflating impact of the 2010 Olympics, house prices in Vancouver would seem fully valued. For many buyers, the high cost of housing has offset the lure of low mortgage rates.

About 70 per cent of those responding to the RBC survey said they believe mortgage rates will be higher next year, compared with only 54 per cent who held that view last year. While half believe fixed rate mortgages will insulate them from interest rate fluctuations, the realization that they'll have to renew sooner or later might contribute to a decision to defer a purchase.

The Bank of Canada hiked its key bank rate this week, putting all financial institutions on notice that it wants to see higher interest rates. Many forecasters are predicting slower economic growth this year, casting another dark shadow over the housing market.

Will all this burst the bubble? It might. But keep in mind that there's no more land to build on in Vancouver, yet thousands of immigrants -- Citizenship and Immigration Canada intends to bring in 250,000 a year -- will want to make Vancouver their home. Scarce supply and strong demand is not a recipe for a market crash.

(Editorial prepared by Vancouver Sun)