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Don't expect the housing bubble to burst: expert

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Summary

The senior editor at MoneySense doesn't expect any major crashes in the market this year

The CREA predicts a 12.2 per cent drop in home sales

VANCOUVER (NEWS 1130) – Housing was the biggest story of 2016 in Metro Vancouver but don’t expect the local residential real estate market to collapse this year.

Romana King, a senior editor with MoneySense magazine, says the housing bubble will shrink and despite endless predictions of its inevitability, it will not burst. “We’re not going to see any big major crashes because there’s still a great deal of demand for very little supply,” she explains.

“We saw the US crash and we assume there are always these massive housing bubbles but that’s not the case. Housing bubbles are actually quite rare because there are huge transactional costs. It’s a lot slower-moving market than say the stock market or the bond market.”

But that’s not all. “That said, we do know that housing bubbles do occur. It happened in the United States, it did actually happened in Canada. They’re just not as extreme in Canada because we have different regulations and different regulatory models for the banks as well,” adds King.
She does expect new mortgage parameters to push demand down slightly but notes the overall inventory of homes remains low.

“Enough of the changes to mortgage regulations, to the little uptick in mortgage rates have pushed enough of the buyers out that we’re going to start seeing some decline in demand that will pull the prices down as well,” says King.

“There are lots of buyers out there that are still very eager to get into the Lower Mainland housing market and that demand is pushing up prices still.”

The Canadian Real Estate Association (CREA) predicts a 12.2 per cent drop in sales and a 7.8 per cent drop in the average price in BC this year. “We’ll see more of the same [gradual decline in prices and sales] in 2017, unless there’s an influx of supply that comes on the market,” says CREA Chief Economist Gregory Klump.