Home prices predictions: 9% drop in 2009

Metro Vancouver's home prices rose the highest in Canada's property boom and will fall the furthest in its correction, real estate firm Royal LePage forecast Tuesday.

Royal LePage Real Estate Services predicted in its 2009 market survey forecast that Metro's average home price will decline nine per cent in 2009 to $540,100 from a 2008 forecast of $593,500.

That's three times deeper than the national average decline for 2009 of three per cent, which should bring the average home price nationally down to $295,000.

Royal LePage CEO Phil Soper said that over the long term, home prices should appreciate in line with the rate that residents' incomes rise.

"Over the last seven years, Vancouver prices increased at a rate significantly above the underlying appreciation of people's incomes," Soper said in an interview. "That's possible if you've got significantly more demand than supply, which has been Vancouver's situation."

Eventually, however, markets reach their "tipping point" and begin to cool, and since Metro's prices reached a great height -- averaging 50 per cent higher than Toronto's, "there is some room for correction there."

Still, as forecasters estimate how far Metro Vancouver's real estate markets will fall, Royal LePage is lining up on the side predicting a relatively shallow dip -- a correction, not a crash.

The Canada Mortgage and Housing Forecast for Vancouver is similar to the Royal LePage assessment, anticipating a further nine-per-cent decline in 2009.

Other forecasters have estimated that Metro Vancouver will drop into a deeper correction. Carl Gomez, vice-president of research for Bentall Investment Management, wrote in December that Metro's prices need to fall as much as 30 per cent from their 2008 peaks to get back in line with people's incomes.

Gomez said the corrections in Metro's markets have not yet taken the effects of a slowing economy into account.

Locally, forecasts have estimated price drops between nine and 18 per cent before prices stabilize.

Soper said Royal LePage's prediction that prices will fall a further nine per cent this year does account for the market overshooting its bottom.

Figures released Monday by the Lower Mainland's major real estate boards showed prices down 11 per cent, year over year, in Metro Vancouver (except for Surrey) and down between 6.6 per cent and 8.4 per cent in the Fraser Valley (including Surrey).

Soper said B.C.'s economy, though it has taken some hits -- such as a downturn in the forestry sector -- is well diversified to weather the economic turmoil that surrounds it in North America and the world.

Soper said B.C. can also expect significant injections to its economy from the 2010 Winter Olympics as well as a provincial government intent on infrastructure spending.

Metro Vancouver also enjoys a significant desirability factor, Soper added. It is Canada's most desirable city to live in, not unlike San Francisco or Manhattan in the United States.

With prices in the city coming down while interest rates remain low, Soper argued that the cost of home ownership will come down enough to draw buyers back and and rally a recovery in the market during the latter half of 2009.

Chris Simmons, president of Royal LePage Westside in Vancouver, said buyers now are paying prices that haven't been seen since 2006.

Soper said the cost of ownership and employment are the two biggest drivers of stability in the housing market.

With low mortgage rates, "we can be pretty confident the cost of [obtaining mortgage] money is under control," Soper said.

However, "if there is widespread, significant unemployment, it would prolong the housing correction. But we don't see that."

Across the country, Royal LePage anticipates that there will be modest price increases in mid-sized cities where home prices are below the national average such as Regina and Winnipeg.

Royal LePage expects Regina's average home price to advance six per cent to hit $243,300 in 2009. Winnipeg's is expected to rise four per cent to $204,900.

"Most consumers are not aware that nationally, Canadian housing market activity peaked in 2007 and has been adjusting lower since," Soper said. "We are well into this inevitable cyclical correction."

(prepared by Derrick Penner/Vancouver Sun)



MORE ROOM TO TO FALL

Major real estate firm Royal LePage is forecasting that Metro Vancouver will lead the nation in price declines in 2009. Below are LePage's predictions for average home prices, with their change from 2008.

Vancouver $540,100 -9%
Edmonton $333,000 0%
Calgary $402,000 -1%
Regina $243,300 +6%
Winnipeg $204,900 +4%
Ottawa $291,000 0%
Toronto $364,800 -4%
Montreal $254,400 -1%
Halifax $234,300 +1%
Canada $295,000 -3%

(Source: Royal LePage)