Genworth: Higher house prices into 2011?
By ebizniz on June 23, 2007 - 5:13pm
A web-log posting by Vancouver Mortgage.
This week, Genworth predicts higher Canadian house prices into 2011 and ‘relief’ for buyers with longer amortization term and lower-down payment requirement.
The report quoted:
“In Vancouver, new home price increases are forecast to be 7 per cent in 2007 to an average of $673,706, compared to a 6.9 per cent average hike last year. Vancouver new home prices are then forecast to climb 4.3 per cent annually on average from 2008-2011. Growth in Vancouver resale home prices is forecast at 11.7 per cent this year to $569,689, down from a 20 per cent resale home price rocket in 2006, and increases of more than 13.5 per cent in 2005 and 2004. Vancouver’s resale home prices are expected to rise a more modest 6.6 per cent annually through 2011″.
I think the price increase predictions could be too simplistic for the following reasons:
1) The impact of higher mortgage interest rates on housing market sentiment was not mentioned, and this could trigger a price correction. With possible 0.5% to 1.0% interest rate increase this year and early next year, I suspect housing demand will drop, and the market may take a dive.
2) No where was it mentioned that house prices are over-priced (as much as 25%), and when the market sentiment turns, prices could drop by 10% to 15%. I don’t see how the market can sustain todays prices if demand drops, and when investors/speculators turn into sellers.
Another quote by Genworth Financial:
“strong demand for longer-term amortizations and low-down payment solutions that make entering the housing market more affordable for first-time homebuyers”
There is a “big question mark” on how these improve housing affordability. There is no study on “how many more new buyers are created as a result of longer amortization term and lower down-payment requirement“.
I do not see how the housing market can be sustained into 2011 without a price correction!
With average household income around $60,000, the present house prices are out of reach and home buyers are just not “qualified” to meet the debt service ratios required by Canadian banks.
When the housing bulls turn to bears, the market will turn ugly. The risk is too high to buy now. If you need to buy because you are afraid house prices will go up higher, be prepared to hang on to your house when the market corrects.
No body knows when will be that day!
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