Timescolonist.com

 

The capital region is largely insulated from economic factors affecting housing in other parts of the country, says the head of the Victoria Real Estate Board, responding to a warning from economists that home prices are showing signs of a "classic bubble."

"The important thing to remember is that real estate is local," board president Dennis Fimrite said Monday. Not only has B.C.'s economy proven stronger than those elsewhere in Canada, the local market is bolstered by the limited amount of land for construction.

"If you look specifically at Victoria, we haven't seen any slowing of the economy here, although there's a little bit of government downsizing. There are still developers who are breaking ground on new projects."

Victoria's economy is protected because this is a retirement town, a government centre with a strong high-tech sector and an attractive place to live, he said.

A new report from Bank of America Merrill Lynch economists Ryan Bohren and Sheryl King said that in contrast to the U.S., Canadian home prices set new highs this year and are "now showing the signs of a classic bubble.

The report estimates the housing market nationwide is 10 per cent overvalued, adding the number would be higher if mortgage rates weren't at record lows. "Under more normalized interest rates, home prices would actually look 25 per cent over-valued based on current prices."

Although Canada is somewhat shielded from the fallout of Europe's debt crisis, it is not impregnable, they said. The housing market is one of the most vulnerable sectors in a weakening economic environment as Canadians head into 2012 holding record debt and the unemployment rate shows potential to rise.

Bohren and King expect housing prices will decrease by about five per cent as demand slows in the first half of next year, with prices flattening by the end of 2012 as economic activity picks up.

However, a grimmer scenario could see home prices slide by 10 per cent if unemployment rises above eight per cent and the S&P/TSX falls below 10,000, the report said.

Greater Victoria's employment rate of 6.1 per cent is better than that for Canada as a whole, at 7.4 per cent.

Last month, a total of 482 properties sold through the Victoria Real Estate Board's multiple listing service. The average price for a single-family house was $592,034 and the median was lower at $530,000. The average price of a condominium was $320,558 and the median was $296,000.

Casey Edge, executive officer with the Canadian Homebuilders Association's Victoria office, noted that Bohren and King singled out the condominium market as being vulnerable, specifically mentioning Toronto. "But if you look at B.C.'s overall housing starts for the year, condos are also driving the B.C. numbers, mostly coming from the Lower Mainland.

Single-family housing starts in most B.C. communities, including Vancouver, have seensignificantdeclines this year, said Edge, blaming the province's harmonized sales tax and transition back to the provincial sales tax. "As a result, single-family-housing starts are the lowest in 10 years."

By the end of the year, Edge expects between 616 and 626 new single-family homes will have been built in 2011 in Greater Victoria. Previously, the lowest number of starts was 629 in 2001, followed by 635 during the 2008-2009 global meltdown.

"The silver lining in this very dark cloud is a buyer's market has emerged," Edge said.

cjwilson@timescolonist.com