Housing boom forecast to continue through 2007

Southwestern British Columbia's housing boom should echo on into 2006 and 2007, the Credit Union Central B.C. is predicting, although at somewhat lower volumes than 2004 and 2005.

Credit Union Central is predicting that although mortgage interest rates are expected to rise by more than a full percentage point over its forecast period, and housing sales and new-home starts will both rise, demand will still be brisk enough to push up selling prices.

Credit Union Central economist Dave Hodben said real estate markets will probably see single-digit increases in sales and starts, not the double-digit increases people have experienced over the past couple of years.

"[But markets] are going to remain at high levels and expand even more," he said.

Credit Union Central predicts that unit sales across the region will increase an average of about six per cent over 2006 and 2007 to 66,850 transactions in 2006 and as many as 71,000 in 2008.

It forecasts that housing starts will rise an average of two per cent per year in 2006 and 2007, compared with an average 23 per cent per year between 2002 and 2004.

That will put starts at 21,900 for 2006 and 23,150 for 2007.

However, because housing demand is expected to keep on rising as well, Credit Union Central is predicting that house prices will rise at a compounded nine per cent through 2007.

Hodben said rising mortgage interest rates, spurred by expected increases in the Bank of Canada's key overnight lending rate, will only be in the order of about one percentage point over 2006 with the possibility of rate decreases after that.

"That does slightly dampen housing demand at the margin," Hodben said. "A few first-time buyers will not be able to get in, or buy as much housing as they want."

However, Hodben said the expected employment and income growth will help prop up a strong domestic economy, which will "dominate the negative impact of rate increases on the housing market."

He added that a big part of the demand for housing seems to be coming from buyers who are "not particularly interest-rate sensitive."

Those are buyers who are using home equity to "move up" or cashing out home equity by "moving down."

(prepared by Derrick Penner/Vancouver Sun)
depenner@png.canwest.com