Will Canada’s housing bubble affect the Vancouver Island localized market of the Comox Valley? Sensational headlines attract attention. When the real estate headline is focused on something that has the potential to affect us, it can also have a significant, and even lasting, impact. Discussion of a Canadian housing bubble and 25% reduction in house prices over the next few years may fall into the category of a sensational headline. Is this type of headline credible and does it have any relevance to the Comox Valley real estate market?
When I sat down to write this blog, I recalled what a prominent Canadian news icon told me many years ago while attending a seminar on Canada and its news media. He said âalways remember that the new media is first and foremost a businessâ. I also recall him discussing how the person who writes the headline is often not the person who writes the article. As well, when discussing the content of articles, he emphasized the importance of knowing the credentials and credibility of the person who wrote the article. In the context of this article does the author even know where the Comox Valley is located or know anything about Comox Valley homes?
Google the words âCanada Housing Bubbleâ and you will find a tremendous number of returns in response to the search. My search yielded 1.4 million results. But, how much of the information returned in response to the search is credible or believable? Does any of this apply to Comox Valley homes? There is far less if you google “Comox Valley Housing Bubble”.
One of the top search results was a website called canadabubble.com. The site disclaimer is an interesting read and so is the section at the bottom of the home page titled âAbout Usâ. There is nothing written about the people or the organization who maintain the site. Moreover, the about us section states that Canadabubble.com aims at accepting automatically all opinions and giving people a place to discuss and speak out. Credible and trustworthy information? You decide. Comox Valley homeowners certainly have an interest in the topic but will they believe any of this?
In contrast, letâs turn to a Financial Post article dated 25 July 2012 written by John Shmuel. The headline reads âCanadian housing looks to be in soft landing, but actually heading for 25% crash: Capital Economics. The economist who forecast the drop first made the assertion in a June 2010 report and he reaffirmed his belief on 25 July 2012. Who, or what, is Capital Economics? They are an independent macroeconomic research consultancy firm that provides research on the US, Canada, Europe, Asia, Latin America, the Middle East and the UK and on the property sector. They have offices in Toronto, London and Singapore and they provide economic packages sold by annual subscription to over 1200 institutions around the globe. According to their website, they have a team of 25 economists, five of whom focus on property economics. The economist who wrote the article about heading for the 25% crash is not among the five, but the Canadian economist who is part of their global economics section. According to the website, he joined the firm in September 2010 and he has 10 years of experience in forecasting and conducting analyses of the Canadian economy. Letâs contrast his forecast and assertion with those of two other people.
First, in the same 25 July article, the Royal Bank of Canadaâs senior economist was quoted to have said that while he doesnât see evidence of a bubble, he nevertheless expects housings prices in Toronto to cool over the next year, forecasting a 2-7% decrease by mid- 2013.
Second, letâs consider what David Rosenburg has to say. A CNN Money article dated 12 Dec 2011 (The best and worst of Wall Street:2011) ranked David Rosenburg among the top economists for 2011 based on the accuracy of his economic projections. David Rosenburg is the Chief Economist and Strategist with Gluskin and Sheff (an independent investing firm that manages portfolios of three million dollars or more for high net worth investors with offices in Toronto and Calgary). The website of this firm states that anyone can subscribe to his daily economic and financial market insights and opinions called âBreakfast with Daveâ by email for $1000.00 per year.
A Business Insider 11 July 12 article, refers to David Rosenburg making an argument for national home prices in Canada not being sustainable, David Rosenburg makes reference to the average home prices in Vancouver ($733,000) and Toronto ($517,000). Using three charts (Housing starts: Canada versus the US); (National Average Home Price Ratio: Canada versus the US) and (Canada: Vancouver and Toronto Home Prices Relative to US Home Prices), he comments on the existence of a possible Canadian real estate housing bubble. A week later in a 17 July 2012 Financial Post article, reference is made to the following two comments by Rosenburg in his morning note:
âPrices are starting to deflate by 0.8% YoY, though more like air coming out of a balloon slowly than a giant popâ and âIt is gradually becoming a buyerâs market with the inventory of unsold homes rising to six monthâs supply, which is at the edge of a balanced marketâ. The problem with this analogy is twofold. First, the Comox Valley real estate market is already a home buyers market and it has been since 2008. Second, real estate is local and national average prices or average home prices in a major city have little direct relevance to our local real estate market.
Clearly, there is a great difference of opinion between the young economist who is employed at Capital Economist, and the senior economists at RBC and Gluskin Sheff. Whose real estate considerations would you have more confidence in? Perhaps an experience Comox Valley realtor who works in the market every day?
It is also worth noting that these forecasts focus discuss changes to ânational housing pricesâ. What are national housing prices? MLS Statistics showed that the price of an average home in Canada dropped by 0.3% between May 2011 and May 2012. During this same period of time, home price changes ranged from a 17.3% increase in the St. Catharines and Niagara area to a 11.8% decrease in Vancouver. Is a statistic on national housing prices meaningful or relevant to a buyer of seller looking to buy or sell a home in a specific location in Canada? The short answer is NO.
These and other forecasts also focus a great deal on Toronto and Vancouver. For example, TD economists (in an 11 June 12 article in the Financial Post) warn that Toronto and Vancouver are in for a 15% housing price correction in the next two to three years. While these forecast may be of interest to someone living in these cities are they even relevant to a specific location? As an example, go to the Real Estate Board of Greater Vancouver and you will find that the price of a detached home in West Vancouver rose by 41.8% over the three year period ending in January 2012. In June 2011, 77% of all properties that sold for over $1M were sold in West Vancouver. The point being made here is that real estate markets are local and there can be significant variances in a specific area.
While Vancouver was âhotâ not all areas were âhotâ. During this same time frame, the Comox Valley real estate market did not show any parallels to what was happening to the Vancouver real estate market. Crown Isle executive and luxury homes are a bargain compared to Vancouver. I specialize in the Comox Valley market each and monitor it statistically each and every day. If you are thinking of buying or selling in the Comox Valley, contact Brett Cairns of RE/MAX Ocean Pacific Realty.