CMHC Housing Outlook for Vancouver

Vancouver Highlights

• Moderating MLS® sales and more homes listed for sale will move the resale market into more balanced market conditions.
• Home prices will rise 11 per cent this year1, with most of the gains taking place in the fi rst half of the year.
• Modest price growth is forecast for 2011.
• New home construction will increase, but stay below the ten-year average level, this year and next.
• Improving economic and labour market conditions will mean slightly lower rental apartment vacancy rates in 2010 and 2011.

Resale Market Becomes More Balanced

MLS® sales in Greater Vancouver are forecast to moderate in the second half of 2010 and remain flat through 2011. While an improving local economy and job market, along with steady population growth, will support home ownership demand, higher mortgage rates will dampen demand starting in the second half of this year. In addition, much of the pent-up demand that built up during 2008, has been satisfied. In 2009, many first time home buyers made the move to home ownership, taking advantage of record low mortgage rates and prices that had fallen from their previous peak levels. While first quarter home sales this year were well above the low levels of the first quarter 2009, the pace of sales has slowed compared to last fall. This trend will continue, resulting in a three per cent decline in annual sales both this year and next.

At the same time that the pace of sales is expected to flatten, there will be more homes for sale. The steady increase in home prices during the past year has motivated potential sellers to list their homes. The number of new listings added to the market trended higher in the first quarter of 2010. However, strong sales have kept the total stock of active listings on the market well below previous peak levels reached in late 2008.

A combination of moderating sales and an increase in the number of listings will mean more balanced market conditions in Vancouver for the remainder of this year and into 2011. Expect to see fewer multiple offers on properties listed for sale. Buyers will have a larger selection of homes to choose from and more time to make their home purchase decision. With more homes on the market, there will also be less upward pressure on prices going forward. As the resale market adjusts to more balanced supply and demand conditions, the pace of price growth will slow. However, there is often a lag between when conditions become more balanced and when prices react. As a result of high prices and robust sales in the early part of 2010, the annual average MLS® price will increase 11 per cent, with the most of the increase accounted for by the first half of the year. Balanced market conditions will result in home prices rising a more modest three per cent in 2011.

Price growth during the past year has varied by home type. As of March 2010, apartment condo and townhouse prices were two and three per cent above their previous peak levels, respectively. However, single detached home prices were seven per cent above their previous peak level, pushing the total price up nine per cent over the previous peak. Single detached home sales have shifted to the higher price ranges. For example, in 2009, 48 per cent of homes sold were priced above $700,000, while in the first quarter of 2010, 62 per cent of the total sales were above this threshold. Apartment condominium sales saw a smaller shift to higher price ranges, with the proportion sold at the upper end of the market (above $400,000) increasing from 32 per cent last year to 38 per cent of total sales in the first quarter of this year.

Modest Increase in New Home Construction

New home construction in the Vancouver CMA is projected to increase this year and next. An improving local economy and job market will contribute to growth in housing starts. As well, an estimated 16,000 – 18,000 new households will be added to the region annually, largely as a result of migration, contributing to housing demand. The quick recovery in existing home sales and prices during the past year is also giving developers confidence to move forward with new projects.

Foundations will be poured for 12,000 homes this year, a 44 per cent increase over 2009, and 14,500 units in 2011. Even with these robust increases, the number of starts will fall shy of the average for the last ten years (15,360). There will be more single detached and multiple unit home building during the next two years.

Single family home starts will increase, but because this type of construction saw less of a decline last year than did the multiple unit variety, growth will be more subdued (19%). Multiple unit starts are forecast to increase 57 per cent to 8,500 this year. A further 24 per cent boost in 2011 will bring multi family starts near the ten year average level. Larger multiple unit projects, which saw the sharpest decline in 2009, will start to return to the market. However, these projects will be flexible and started in phases, according to market demand.

Part of the reason for this cautious approach to new projects and for the moderate level of starts forecast for Vancouver is that the inventory of completed and unabsorbed new homes has been edging up. While the inventory of unsold single detached homes remains low, more newly completed apartment condominium units have recently been added to the supply.

However, with monthly condo absorption rates during the first quarter of 2010 holding near the twelve month average pace, and with the HST deadline upcoming at the beginning of July, these units will likely be absorbed quickly.

Rental Market Vacancy Rate to Edge Lower

Rental apartment vacancies are forecast to edge slightly lower this year and next, after increasing in 2009. An improving job market and an expected net inflow of more than 40,000 migrants each year will support demand for rental accommodation. Another factor contributing to strong rental demand is that the difference between monthly rental costs and the cost of carrying a mortgage on an apartment condominium is growing. Condominium prices in many areas have rebounded from their previous lows, making rental accommodation a more attractive alternative for those looking to minimize their monthly outlay.

Strong demand for rental accommodation will keep average apartment rents increasing by four per cent this year and next.

Economy

Economic conditions in the Vancouver CMA will be favourable for the housing market this year and next. 2010 began on an up note in the Vancouver CMA with the Winter Olympic Games boosting consumer spending in the region. Most sectors of the economy are poised for growth this year, following an overall contraction of the economy last year. On the services side, the wholesale and retail trade sector is expected to grow, as are the business and noncommercial services sectors. On the goods side, manufacturing will begin to expand as the US economy improves and demand for British Columbia exports rebounds.

Job growth this year and next will support demand for both ownership and rental housing. Vancouver CMA’s job market is expected to pick up as the economy improves. A modest uptick in new home construction will add jobs and non residential construction employment will get a boost from large infrastructure and transportation projects. Some of the larger proposed projects expected to begin in 2010 include the Interior – Lower Mainland Transmission Line Expansion, the Metro Vancouver Waste-to-Energy Incineration Facility, the BCIT Burnaby Campus Expansion, and the Surrey Memorial Hospital Emergency Department and Critical Care Tower4.

Population growth in the Vancouver CMA will continue to contribute to demand for rental and ownership housing. An estimated 40,000 people are expected to move to the Vancouver region each year. This is will add some 16,000 – 18,000 new households each year, in need of housing. Most migrants to the Vancouver CMA are from international destinations, particularly Asia Pacifi c nations. For example, more than seven out of ten immigrants to Vancouver in the fi nal quarter of 2009 came from Asia (Mainland China, India or Taiwan).