Home Market Forcast to be Strong in 2006

Forecasters expect 2006 to continue with strong market activity. Canada Mortgage and Housing Corp. is forecasting robust activity from continuing employment growth, rising incomes and demographic patterns that have seen interprovincial-migration figures swing back into positive territory.

Carol Frketich, regional economist for Canada Mortgage and Housing, estimates that 95,000 homes will change hands in 2006 and about 31,000 new homes will have to be built to keep up with demand.

"When we look at the province's employment record and record level of unemployment rates, those things bode well for housing demand," Frketich said.

"Overall, the outlook is a very positive one for the year."

Frketich said interest rates have begun climbing, with five-year posted mortgage rates edging over six per cent in recent months. However, continuing good news on the employment front "roughly balance out [rising interest rates], and the outlook is still for very high levels of activity in 2006."

The year 2005 saw a record-shattering $35 billion spent to purchase some 106,000 properties, also an all-time high, as British Columbians capitalized on the province's positive economic performance.

Housing starts, which tailed off slightly in the Lower Mainland in late 2005, also edged higher than 2004 at 31,043 new units built and remain at their highest in more than a decade since 1994, when 34,619 homes were built.

Dave Barclay, president of the B.C. Real Estate Association, said housing demand in 2005 was up all over the province, and "we see this trend continuing."

Barclay added that some areas outside Vancouver outperformed Greater Vancouver, in relative terms.

The tiny Northern Lights Real Estate Board, which includes Dawson Creek and Fort St. John in the middle of B.C.'s red-hot natural gas patch, recorded sales values that were 64 per cent above 2004, Barclay noted. The B.C. Northern Real Estate Board, with Prince George at its centre, saw sales values some 30-per-cent higher than 2004, and the total value of Southern Okanagan Real Estate Board's total sales were 36-per-cent higher than in 2004.

Barclay added that the Victoria and Vancouver Island real estate boards showed 20- and 21-per-cent growth respectively in the value of transactions during 2005 versus 2004.

The upturn, he added "seems to be fairly diversified throughout the province."

"The economy is strong, and as long as the economy remains strong, then we see the real estate market remaining strong as well," Barclay said.

However, Patricia Croft, vice-president and chief economist for Phillips Hager & North Investment Management Ltd. points to warning signs in some sectors of B.C.

For one, Croft considers Greater Vancouver real estate prices "the most overvalued in all of Canada," and affordability is "the worst in Vancouver of any major city in Canada."

"That's something to keep an eye on," she said, because if first-time buyers are priced out of the market, "the ripple effect can be pretty powerful."

Croft added that while affordability is a concern, conditions have not deteriorated, and she is projecting that the overall economy will expand by four per cent in 2006.

Growth, she said, is related to booming commodity markets, the underpinning of B.C.'s export economy, to Canada's increasing trade with Asia and to the preparations to host the 2010 Olympics.

Croft said that theoretically, rising interest rates should cool B.C.'s housing market, but she noted that there continues to be robust demand.

"If the Bank of Canada raises rates two or three more times, that may not be enough to curtail that demand," she said.

(prepared by Derrick Penner/Vancouver Sun)

ECONOMIC IMPACT:

REAL ESTATE:

2005 UNIT SALES 106,290

+10.3%

2006 UNIT SALES* 95,000

2005 TRANSACTION VALUE $35.3 billion

+26.8%

REAL ESTATE LICENSEES 16,700

+10.2%

Source: B.C. Real Estate Association, Real Estate Council of B.C.

*Forecast, Credit Union Central of B.C.