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Suburban affordability fueling Metro real estate recovery: analyst

The Lower Mainland residential real estate market has stabilized, according to a Vancouver market analyst, with recovery driven by affordability and marked by the flight of working class families from Vancouver to the suburbs.

“We’ve seen the market correct,” Jennifer Podmore Russell told an Urban Development Institute luncheon on Thursday. “We enter a period of general stability.”

The Deloitte & Touche analyst credited the widespread stops in new construction for the rapid rebound of the market for new homes across Metro Vancouver, where standing inventory has declined by more than 35 per cent since the start of this year.

“The rate at which the industry retrenched -- the virtual halt of construction in 2008 -- directly resulted in a more immediate stabilization in the market,” Russell said. “Our market experienced 8 months with little to no product being introduced.”

Based on current absorption rates, Russell estimated that, “More than half of the [Lower Mainland new home] markets have less than six months remaining available supply... Just nine months ago, based on that same calculation, we were looking at 21 months on average, with two or three markets calculating out at over 70 months of supply,” she said.

In the face of bubble crash theories -- such as that published today by Tyee columnist Murray Dobbin -- Russell predicted, “We will not be mimicking the gluts of supply which we were forced to address in previous downturns.”

She even warned that a continued construction slow-down “could result in a constricted supply as early as mid-2010.”

Russell, formerly of MPC Intelligence, said affordability has fueled the recovery.

“Sales activity has been supported by the first-time buyer and their new-found affordability in suburban markets,” she said.

“Areas like Surrey, Langley and the Tri-Cities were best poised to capture the return of demand, due to the lower-density nature of the product, the affordability, and attractive price points...”

Russell said that in the past nine months, 1,200 multi-family units were sold in Surrey, and another 600 in Richmond.

“South Surrey saw a dramatic return of activity for ground-oriented homes driven by the renewed consumer confidence, but also by pricing corrections and by low interest rates,” she said.

Likewise, in Vancouver, “condominiums downtown saw a surge of activity in homes under $400,000.”

Russell counseled the Urban Development Institute crowd -- a tribe that during the past decade had elevated Yaletown-style Vancouverism to something like a religion -- to abandon its faith in high-rise condos, and return to the historical roots of the Vancouver market: cheap houses on ever-smaller lots.

“The Lower Mainland typically supports the construction of lower density product. Ground-oriented product is always preferred. And this year we’re returned to more historically accepted levels of proportion among high-density, medium-density and low ground-oriented product,” Russell said.

“Lower-density products such as townhomes and low-rise condominiums continue to account for the majority of new-home sales,” she said. “Even in Vancouver... the product that’s been released to the market this year tends to be less dense than the presales we saw in years past,” she added.

“So while at the peak of the market in 2007 we witnessed more than 40 per cent of all sales of new homes being in high-rise condominiums... The first nine months of this year are very different, with only 14 per cent of all product being sold in high-rise class,” Russell said.

“It’s no surprise, at least to me, that those buildings able to capture strongest presales were not towers but mid-rise buildings,” Russell said, “developments which offer neighborhood-oriented properties on a more human scale... projects that offer a more comfortable scale of living --- one in which you know your neighbour and your community, one which isn’t generic but has interesting buildings, strong aesthetics and great location.”

Monte Paulsen reports on housing for The Tyee.

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