One of the best and most honest summaries of current sentiment regarding the economy came halfway through Central 1 Credit Union chief economist Helmut Pastrick’s recent presentation to the commercial real estate association NAIOP.
“That yellow line depicts a nice, smooth, orderly path for GDP,” he said, as a graph projecting U.S. economic growth appeared on a screen behind him. “It won’t be like that. Think of [that line] more as a trend.”
The comment got some laughs, and listeners took reassurance from Pastrick’s firm rejection of any suggestion that Vancouver is in bubble territory when it comes to residential real estate (thanks, largely, to the absence of a speculative factor at play in the market).
But on the escalator out, some listeners questioned the accuracy of Pastrick’s prognostications.
Whatever the trend line showed for GDP, it was clear some reserved the right to be skeptical.
And well they should; as Pastrick himself indicated more than once in his remarks, forecasting where the economy is going so that investors, developers and tenants can make wise decisions is never easy.
Case in point: Credit Union Central of BC (as it was then known) announced the “best five-year outlook since 1985” in November 2007. A year later, it noted the drag on the economy caused by “the most severe financial crisis since the Great Depression.”
The presentation Pastrick delivered to NAIOP that year wiped the smiles off most faces in the room.
“It is quite difficult to accurately predict where we’re going,” he said at the time.The one success Pastrick has had is underestimating both the depth of recession and the heights of growth.
Since the turmoil of 2008, Pastrick has been conservative regarding growth prospects for 2010, which he’s now scaled up to approximately 3.1%.
Next year, Pastrick is scaling back his analysis, which in 2006 forecast 3.4% growth before dropping to 1.9% at the depths of the recession. He’s now pegging growth at 2.4% or less.
The recovery in B.C. home prices over the past 18 months has prompted renewed talk about a housing bubble, most recently as analysts have stacked up home prices against incomes and expounded on affordability metrics.
Others have pointed to the proportion of mortgages in arrears as a sign of impending housing chaos.
Canadian Bankers Association statistics indicate that the proportion of B.C. mortgages in arrears in August 2010 returned to May 2003 levels, with approximately 0.45% three or more months behind in payments.
That’s well above the 20-year average of 0.32% of mortgages in arrears, but still well below the plus-0.5% arrears rate the province saw from October 1998 to January 2003.
Still, the current run-up is more dramatic than when mortgages in arrears – often the precursor to court-ordered home sales – were piling up from 1993 to 1998. It took the arrears rate just 38 months to rise from a low of 0.13% to 0.45% in August 2010; during the 1990s, mortgages in arrears took 58 months to rise from the previous low of 0.11% to 0.46%.
B.C. Housing Minister Rich Coleman gave an overview of the role of North Vancouver-Lonsdale Liberal MLA Naomi Yamamoto’s work as minister of state for building code renewal at the Urban Development Institute’s recent luncheon in Vancouver, but almost lost in his introduction to her work and the importance of greening the B.C. building code was the fact that there will soon be one code for B.C. (See Peter Ladner’s At Large column, page 28.) The initiative promises to even the playing field for developers, creating a common standard from municipality to municipality. Coleman pointed to first-hand experience of government in building social housing in communities where local idiosyncrasies in regulations increased development costs.
He said commercial developers have occasionally abandoned municipalities over such expenses.
“It shouldn’t be the psyche that we’ll just add regulatory burden and cost for the sake of having one more thing on the document or paper that we need to have checked off before we’ll approve a building permit or allow somebody to build,” Coleman said. “We have to change that attitude.”