Looking Forward: Alberni Valley Real Estate Market

As a Realtor serving the markets in the Alberni Valley, and Vancouver Island's West Coast, the most common question I am asked is "What do you think the market is going to do?"  This is a very difficult question to answer, and as a real estate professional, also a dangerous one.  Difficult because there are so many different things that affect the real estate market in my area: global economics; North American economics; national economics & politics; municipal economics & politics; consumer confidence; demographics; etc. etc.  Dangerous because any advice I give on this important topic may ultimately influence major life and financial decisions for my clients.  The truth is that I have my academic theories and  gut feelings, but I can't say I know with certainty what is going to happen with the market tomorrow. 

To dig into this question about the market let's begin by looking into global and North American economics.  As you are all aware the 2007-2008 financial crisis, which saw the collapse of a number of financial institutions in the US, was the worse financial disaster since the Great Depression. While the real estate markets in the US began to crash, those in Canada began a more gradual slide.  The world is still reeling from the financial crisis and there remains a lot of uncertainty in the European Union, the US, and the rest of the world.  However, I consider job growth to be a leading indicator of an economy's recovery.  Job growth in the United States, Canada's largest trading partner, seems to indicate for now that a recovery is on the horizon.  I stay out of politics, but I believe that an incumbent President being re-elected is a positive thing in this economy, as it adds economic policy continuity in these uncertain times.

Next let's discuss Canadian economics.  We fared much better through the financial crisis due in large part to our banking regulations.  According to Statistics Canada, job growth has been trending upwards since mid 2009.  The Canadian prime interest rate hit a high of 6.25% in the summer of 2007, down to a low of 2.25% in the spring of 2009, and up to 3.00% in the fall of 2010 where it has remained to the present day.  Low interest rates makes money affordable to people looking for a mortgage, which is good for real estate demand, but also means that Canadian investment dollars may flow out of the country and less foreign investment dollars may flow in.  Again, I stay out of politics, but the continuity in national leadership adds a level of economic policy stability in uncertain times. 

Moving on to municipal economics and politics.  The Alberni Valley is no doubt currently in the midst of an identity crisis.  High paying jobs in industry have been on the decline for many years.  Meanwhile we continue to see the growth of the Pacific Rim Shopping Center, new homes still being constructed and sold, and even the birth of an adventure tourism industry.  It remains somewhat unclear at the moment where are civic leaders are taking us, but the people of the Alberni Valley continue to work hard and find ways to succeed. 

Consumer confidence is, in my opinion, a major factor in where our real estate market goes from here.  When people feel confident they buy and invest, and when they don't they save.  Unlike the stock market, which reacts almost immediately to changing conditions, the residential real estate market is slow to react.  The reason for this is this is psychological.  People attach emotional value to their homes, and when the market starts a downturn, it is difficult for people to accept this change.  A declining real estate market is initially characterized by a large number of homes that are listed at a price higher than the market will bear.  Over time people accept the change, that they cannot control, and the market begins to work efficiently again. I believe that we have hit that level of efficiency in the Alberni Valley. 

Demographics is a very timely discussion in Alberni Valley real estate.  Remember that baby boomer migration we kept hearing predicted?  I believe it is beginning.  Housing prices in the Alberni Valley are the most affordable of any city on Vancouver Island. The image of Port Alberni is slowly being changed to one of affordable retirement and healthy recreation.   We realtors are beginning to field more calls from retirees, or soon to be retirees, looking for affordable retirement living on Vancouver Island.  These calls are coming from all over North America. 

Now, let's get back to the original question "What do you think the market is going to do?"  I've outlined that global economics remain uncertain, while the Canadian economy seems to have fared better and seems to be recovering better.  I've explained that the Alberni Valley prices coupled with demand from baby boomers make it an attractive option for retirement.  I've explained how consumer confidence remains a major hurdle to full recovery, while at the same time people have began to accept the new economy were in.  What this paints is a muddled picture, which explains my original answer - I can't say with certainty.  My gut feeling is that the market in the Alberni Valley will continue to edge down in the short term, and that a recovery is coming in the medium to long terms.

Finally, let's take a look at the stats for single family homes in the Alberni Valley from 2007 to the present.  The countless factors that affect our real estate market can be reduced to simple supply and demand.  When supply goes up, and demand remains the same, prices and unit sales will drop.  When demand goes up, and supply remains the same, prices and unit sales will rise.  Please don't forget that analysing the past is never a perfect way to predict the future. 

* 2012 numbers are for the first 3 financial quarters

The ratio of units sold to units listed has been trending downwards since 2007, as are unit sales in general.  This would, at first glance, suggest a trend of declining median sale price - which has not been the case.  Empirically I can tell you with certainty that house prices have dropped - we have seen the exact same house, in similar condition, sell for less money as time has moved on from 2007.  What I should  also tell you empirically is that we are seeing investors we respect purchase investment properties in the Alberni Valley over the past few months. 

The information I have outlined above is intended for you to analyse and draw your own conclusions.  The old joke goes "If you ask ten economist what the economy will do, you will get ten answers."  I am not an economist, I am a simple businessperson and Realtor working to better inform and serve my clients.