Tight real estate supply discouraging upward market movement

Tight markets

The BC Real Estate Association’s (BCREA) latest monthly analysis of provincial real estate sales flags the potential for a return to more balanced market conditions by the end of the year, even as a lack of supply continues to drive home prices higher. BCREA chief economist Cameron Muir said home sale volumes are moderating, while more buyers are listing properties.

Buyers aren’t out of the woods yet, however. Muir suggested that the improvement might simply mean that buyers will be faced with a 10-year low in supply.

“Instead of 20-year lows, we’re at 10- or 12-year lows,” he said last week. “That trend will have to continue some time before we see any balancing in the marketplace.”

But if misery loves company, the world has plenty to offer local buyers wrestling with local realty.

Reports from south of the border indicate a similar dearth of listings across the U.S.

Resale listings hit a 17-year low earlier this year, and Lawrence Yun, chief economist with the National Association of Realtors, continued to express concerns at the end of July.

“Low supply is an ongoing issue holding back activity,” he said. “Housing inventory declined last month and is a staggering 7.1% lower than a year ago.”

While every market is different, supply and demand play a role, said Tom Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate. On the one hand, strong demand might eat into listings; on the other, people might opt not to replenish listings.

“One thing I heard is that high prices are preventing trade-up,” he said of local markets.

This isn’t typical, however, because higher prices should make it easier for owners to trade up, freeing more affordable properties for first-time buyers. But price escalation could be leaving everyone behind.

“When markets are extremely tight, home sellers, if they’re going to sell and buy in the same region, they’re going to be faced with the same tight supply,” said Muir.

But he expressed faith in home prices to induce a correction (something those who #donthaveamillion might question).

Tight supplies

A comparison of the Seattle and Vancouver real estate markets from Seattle’s Sightline Institute has drawn attention in various circles this summer. Yet perhaps the most interesting aspect of its critique of housing markets in the two cities is how different variables can create similar experiences. This line stands out: “Vancouver builders have focused on condos rather than rentals, while in Seattle the opposite has been true.”

The report contends that the result has been little to buy but plenty to rent in Seattle, at least for affluent tech-sector workers: “Compared with Vancouver, Seattle has had a more sustained, hotter job market, adding many high-paying tech jobs.” Indeed, the report names Seattle among the top five cities in the U.S. where renters have the means to buy, if only product were available.

Vancouver, on the other hand, lacks not only a standing inventory of homes to buy, but also a supply that matches local incomes. Homeowners, as successive reports from CIBC economists indicate, are therefore more likely to renovate than relocate.

Sightline argues that what buyers really need are options.

“Taxes on foreign buyers or empty homes may be helpful partial responses to housing bubbles, where they occur,” the report concludes. “But the surest way to end harmful speculation in the housing market is to deal with shortage by creating ample homes.”