Vancouver Market May be Headed for a Soft Landing
Demand for housing in Vancouver has been softening since the beginning of 2006. In six of the last seven months, unit sales have been virtually flat or negative on a year-over-year basis. This may reflect the fact that the average resale house is now priced at over half a million dollars and home ownership costs have climbed to almost 50% of median household labour income.
Supply conditions have been more mixed. There have been substantially more new listings, with increases in six out of the last seven months on a year-over-year basis. As a result, the sales-to-new listing ratio has declined and now stands at only slightly above the 0.6 mark. This suggests that while it is still a seller's market, the balance between supply and demand has improved. However, there is still considerable tightness in the new home market. To illustrate, the inventory of unsold new homes stood at just 712 units in June - which is a record low.
There is welcome news that the rate of home price appreciation appears to have plateaued, but it has done so at an extremely elevated pace of around 20% year-over-year. Some of the market's strength is supported by fundamentals including lower unemployment, rising income, low interest rates and secutiry of land, but the substantial double digit price gains cannot last indefinitely and they will likely be brought back to earth with an increase in supply, particularly on the new home front.
The recent trend towards weaker unit sales ans rising listings is a positive development that might augur for a soft landing if it cintinues. Close monitoring of thius market is clearly called for.