March home sales and new listings set records in Metro Vancouver VANCOUVER, BC –…
Careful What You Wish For The Economic Fallout of Housing Price Shocks
The desire of some well-meaning British Columbians for government to drive down the price of homes through demand-side policy may sound practical at first blush. However, when you consider the broad and deep economic toll that a negative shock to home prices would exact on both homeowners and renters, it quickly becomes apparent that such an approach is at best, a mug’s game. BCREA Economics analysis* shows that even a relatively modest negative price shock will produce significant consequences to the BC economy.
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Nearly 70 per cent of British Columbian households own their home. A relatively minor 10 per cent negative shock to home prices would extinguish $90 billion of their wealth, or $70,000 of the average home owner’s equity. While some may see this as a paper loss, it will have a significant impact on the economy, as declining household wealth reins in consumer spending. Retail sales would suffer, with an estimated $1.8 billion in forgone revenue in the first year after the shock.
Home construction activity would fall dramatically. Home builders would cut back production 25 per cent; that’s 10,000 fewer housing starts in the first year alone. A negative price shock would markedly slow the expansion of the housing stock, creating even more critical housing supply problems down the road.
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