Condo prices were supposed to be sky high by the time the Olympics ended. Then came the recession.

In the spring of 2008, I was quoted in the Vancouver media as predicting that the city’s real estate bubble was going to burst after the Olympics. So, two years on, was my prediction any better or worse than those for Olympic medals?

Well, first let us revisit the basis for my prediction. Its impetus was a conversation with a taxi driver who had told me that he and some friends were buying condos off the plans with a $25,000 deposit on a face value of $600,000. They expected that these units would be worth $1 million after the Olympics, yielding an incredible profit. I believed that such speculative buying was flawed, and ignored a number of market fundamentals. Yes, condo prices had been rising, but this was based on unprecedented growth in incomes, high migration, and low interest rates – all factors that I anticipated would not last. This proved true, with the exception of interest rates, which dropped even lower as the Bank of Canada sought to manage the impact of the global financial crisis.

In early 2008, condo construction was at an all time high. Almost 15,000 units were being built, double the annual average of the decade up to 2003. But the volume of unsold units was also trending up, augmented by the high levels of development. Much of this excess supply would be hitting the market in early 2010, just when the units used for the Olympic village would also enter the market en masse.

In my professional opinion, all of this did not add up to a 66 per cent increase in prices in two years, as anticipated by my taxi driver and his friends. Thus, my prediction was not that the Vancouver market prices would plummet, but rather, that there was no way prices were going to continue rising to generate massive profit on speculative buying.

So where are we after the Olympics have ended? Well, the other intervening factor was a global financial crisis that slowed down economic growth, income growth, and the demand for housing. The crisis simply accelerated an inevitable correction so that it occurred before the Olympics instead of after, as I had predicted.

Total housing starts in Vancouver declined by 60 per cent in 2009. For condos, the drop was even more dramatic, falling 71 per cent, from 14,000 to 4,200 units. More significantly, many units slated for construction were never built. There were just over 14,000 starts in 2008 but only 1,300 units were completed.

And what about condo prices? Looking at the overall market, not just new sales, the average condo price in Vancouver peaked at $420,000 in May 2008. By March 2009, it had sunk to $353,00. Now, with fewer units entering the market, prices have recovered, but only back to the same level of $420,000 they had achieved two years earlier.

So what of my taxi driver and his expectation of a massive windfall? I guess he’s still driving a taxi. Perhaps he was lucky enough to ferry a few gold medalists.