Housing industry statistics create a bewildering picture for consumers

Sometimes the media publishes or broadcasts contradictory reports on the state of the housing industry. Different agencies issue reports on such things as housing prices, housing starts, and sales activity, which are then repeated by reporters. It can create a bewildering picture in the minds of consumers.

For instance, on August 11, the Canada Mortgage and Housing Corporation declared that there was a 10-percent decline in the seasonally adjusted annual rate of urban housing starts in B.C. That presumably spells bad news for the Metro Vancouver economy and in particular for retailers, because housing starts are a catalyst for future purchases of carpets, drapes, appliances, paint, plumbing fixtures, and other home-related products.

The following day, Statistics Canada stated that Vancouver’s new housing price index fell 9.1 percent in June compared with the same month last year. There was a 0.9 percent decline from May to June, according to the national number-crunching agency. Again, it sounds like bad news for the Metro Vancouver economy.

“In Vancouver, some builders lowered their prices to stimulate sales and sell off their houses in inventory while others offered free upgrades and cash incentives,” Statistics Canada stated on its Web site. “A small number of builders did increase their prices on some popular models that were selling well.”

However, on August 5, the Real Estate Board of Greater Vancouver reported the highest residential sales volume ever recorded in the month of July. The total—4,114 sales—eclipsed the previous record of 4,023, set in July 2003. That is a sign of a robust real-estate industry.

Economist Dave Hobden said he believes that Metro Vancouver is moving into what he would describe as a “seller’s market”. Hobden, who works in the B.C. regional office of Central 1 Credit Union, told the Georgia Straight in a phone interview that the “downdraft” in the housing market lasted from February 2008 to January 2009. “We’ve had four consecutive months of increases in the housing price index for the Lower Mainland,” he said.

He noted that the high sales volumes have dramatically lessened an “oversupply situation”, which was most apparent in the number of listings. “Of course, the resale housing market generally leads the housing construction,” Hobden added. “What that means going forward is that housing starts should pick up toward the end of this year.”

The high sales volumes are having an effect on prices. In July, the REBGV’s benchmark price for all residential properties reached $528,821, up 9.2 percent since the beginning of the year. Hobden noted that rising prices in this region have already offset half of the decline that occurred in housing prices between February 2008 and January 2009. “It has come back substantially and dramatically in the last four months,” he said.

Hobden pointed out that it takes time for builders to get projects approved and into the development “pipeline”. As this happens over the next few months, Hobden expects an increase in housing starts. “Residential investment spending—which is construction of housing—is not only a sizable chunk of the economy, but it’s very significant in terms of economic growth,” he said. “So it’s good for next year’s economy.”

The B.C. Liberal government’s decision to introduce a harmonized sales tax on July 1, 2010, could also have a stimulating effect early next year, he noted. That’s because some buyers will want to close purchases before the tax takes effect. Real-estate sales aren’t covered by the provincial sales tax, but they will be caught by the 12-percent HST.

“I think there will be some shifting of purchases to just before that [takes effect], and a hollowing out just after that,” Hobden said. “It will all wash out over the course of six months or a year.”

The province has promised rebates of five percent up to a maximum purchase price of $400,000, which means consumers can get up to $20,000 to offset the provincial portion of the HST. However, home buyers will pay the full seven-percent provincial portion on any amount over $400,000.



Donald Wilson

Aug 27, 2009 at 12:50pm

The new HST will not be applied to the sale price of homes in BC, except for new homes currently subject to the GST. The impression given by the article is that all sales would be subject to HST, which is NOT true. Any fees paid to lawyers and other professionals that currently attract GST will also likely attract HST but will not materially affect the housing marketplace.

The biggest effect of the HST on new house prices will be to slow the recovery of new home construction, which has take a bit of a beating in the market from last year to now. With a strong resurgence in the resale market the new home market will be sure to follow, but perhaps not as quickly as it would have done in the absence of the new HST in July of next year.

Any new construction going to zoning boards and municipal approval at this point will likely be coming to market after the change in the HST rules and any analysis of increased prices at this point is simplistic unless it takes into account the impact of new input credits available to builders in the new system.

Go to my blog at http://www.trilliumaccessiblemortgage.ca/?section=53&id=116 for more about real estate and mortgage investing, and the impact of the new HST on future pricing in the BC markets.

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