When it all comes crashing down

 

 

The housing market has been the talk of the town around the Lower Mainland for years – and rightfully so. With housing prices hitting record highs and homes selling for millions more than their asking price, it’s been hard to have a conversation without referencing real estate.

 

But if the saying is true, and what goes up, must come down, is a drop in the market imminent? And can the city survive a crash if it were to happen?

 

While potential buyers would be crossing their fingers hoping their chance to enter the highly competitive market is around the corner, experts are predicting that it’s not in the cards in the near future. “[There is] no sign of a slowdown in 2017,” says realtor Jessica Prasad P.R.E.C. from Re/Max Sabre Realty. “Vancouver condos have been increasing at 2.2 per cent per month. Townhouses are on fire this year, too.” But what would happen if a drop were to occur? Prasad believes Vancouver would survive – with a strong economy and the draw of the area’s outdoor amenities and beauty, she believes people from all over the world will still be interested in and able to support the real estate industry.

 

 

While a drop over the next several years may not bring all bad news, a crash on the other hand could have serious long term affects for many throughout the province, and potentially the country, depending on the catalyst for such a substantial downturn. “I think it would be pretty bad for the local economy,” says Tom Davidoff, an economist at UBC’s Sauder School of Business. “A lot of people are employed in real estate and affiliated industries.”

 

 

Jack Favilukis, professor at UBC’s Sauder School of Business, says that a city’s reaction to a drop or crash in the housing market is as complicated as the reasoning behind it. “If the drop happens because foreigners pull out of the market, and if the locals haven’t been speculating and overleveraging themselves, then the drop won’t really have many negative consequences,” he says. “Sure, some people will feel poorer, and some people won’t be able to borrow against their house to buy a new TV or car, but we would be unlikely to see mass defaults and spillovers to the rest of the economy (as we saw in the US in 2008).”

 

However, Favilukis says that if foreign investors pull out and locals have been “buying housing with the hope to sell it for more in a year and using short term financing – then these people will have no way to refinance and we will see mass defaults. This will affect the banks and can cascade to the rest of the economy.”

 

If Vancouver were to see a drop or crash in the near future, it could be a matter of waiting out the storm or expecting strategic intervention depending on the severity of the downturn. There are risks to investors, the economy, and potential and existing homeowners but the past has proven that with the right tools in place, the market can and would recover.