Opinion remains divided in British Columbia. Either we鈥檙e on the cusp of a massive housing crash, or prices will simply flatten out and we鈥檒l see that fabled 鈥渟oft landing鈥� so many analysts promised.
I don鈥檛 put much faith in the notion that real estate will have a soft landing here in Metro Vancouver. But I think we should remember that a crash won鈥檛 happen all at once.
We haven鈥檛 had a major housing price collapse anywhere in Canada in decades. We鈥檝e had minor corrections, we鈥檝e had slowdowns. The 2008 recession took a chunk out of prices, but for barely a year. Fortunately, the Canadian housing sector wasn鈥檛 propped up with dubious loans in the same way as the U.S. market.
But it also means there aren鈥檛 many pundits, realtors, or economists who were actually active during the last major housing crashes. And frankly, some of them seem to have forgotten what it was like, or convinced themselves it can鈥檛 happen again.
The two most recent crashes were in 1989 in Toronto, and in 1981 in B.C.
Both involved a huge boom in buying that saw prices shoot skyward. Both involved a lot of condo projects and speculation.
In B.C., after the dust had settled, prices dropped about 40 per cent in 18 months. Adjusting for inflation, it took some properties almost 20 years to reach the values they鈥檇 sold for around 1981.
In Toronto, prices rose 113 per cent from 1985 to 1989, then began dropping. And kept dropping.
Average housing prices dropped for seven straight years. Yet again, prices dropped 40 per cent over most of the city, and up to 50 per cent in Toronto鈥檚 downtown core. Adjusting for inflation, prices didn鈥檛 hit their peaks until 2010.
Our situation right now looks a lot like Toronto鈥檚. We鈥檝e seen prices rise year after year, with the launch point of the current boom in 2015.
I鈥檓 sure there are plenty of people ready to reply 鈥渂ut the fundamentals are strong,鈥� but that鈥檚 nonsense. The only fundamental that really matters is whether people who want to live in the area can afford to buy homes.
They can鈥檛.
Worse, we鈥檙e building more housing units right now 鈥� more than 40,000 annual starts by 2018 鈥� than projected long-term population increases, which is around 30,000 for Metro Vancouver.
Prices will go down. It鈥檚 already started. But it鈥檚 going to take a long time, maybe years, for the air to leak out of the balloon.
