Housing Market Sees Short "Dip"

Lower Mainland real estate markets have slid into a "mini correction," Credit Union Central reports, as the higher mortgage rates that took effect in July have taken some of the wind out of housing sales.

Credit Union Central, in its Jan. 6 Weekly Economic Briefing, reported that December sales in Greater Vancouver slipped to a seasonally adjusted 3,261 transactions, down from 3,415 in November and lower than the August high of 3,941 transactions.

In the Fraser Valley sales were similarly off, with that region recording sales of 1,476 units in December, compared with 1,740 in November, and down from an August high of 2,185 units.

"This is just a short-term dip here," said Helmut Pastrick, chief economist for Credit Union Central B.C. "It started when rates began to bump up in July, [and] we're now approaching six months of it already. Typically these, let's call them mini corrections, only last no more than eight or nine months."

Pastrick said such minor corrections in short-term sales trends are common during upward swings in real estate cycles. He added that the current upward cycle, which started in about the middle of 2000, has seen three or four "mini corrections."

Year-over-year comparisons for 2005, however, miss the current down-trend, Pastrick said. They happen in response to moderate increases in mortgage rates, and occasionally because of other demand fundamentals that turn negative.

Such corrections, Pastrick added, do have some impact on prices "at the margins."

"It's still a seller's market, but it's not as tight as it was six months ago and prices are increasing, but the rate of increase is slowing," he said.

However, Pastrick doesn't see the correction as a sign that the so-called real estate bubble is popping.

"I don't think we were in a bubble in the first place," he said, because B.C.'s economy is too strong.

Whether sales will stabilize depends on interest rates. Pastrick said the Bank of Canada will likely raise its key overnight lending rate by a quarter of a percentage point Jan. 24, and may raise it again in March.

However, he believes the central bank will stop raising rates in the second quarter of this year, which will stabilize mortgage interest rates and real estate sales will stop declining as a result.

Pastrick noted that short-term interest rate increases have slowed sales in the past, but rates have then declined and "reignited sales."

"I'm looking for the [real estate] trend to stabilize sometime in the next four months or so once the Bank of Canada stops raising rates," he added.

(prepared by Derrick Penner/Vancouver)