Vancouver, B.C., May 5, 2021 –
- B.C. home sales to grow by 37 per cent in 2021, followed by 21 per cent contraction in 2022 and 3.7 per cent drop in 2023;
- Median resale price of B.C. home to grow 10 per cent in 2021 (to $643,000), followed by 4.2 per cent increase in 2022 (to $670,000); and 3.0 per cent increase in 2023 (to $690,000);
- Housing starts up 10 percent in 2021, holding steady in 2022 due to weaker immigration, followed by 11.7 per cent increase in 2023 as immigration cycle returns;
- Higher mortgage rates unlikely; supply challenges and population demand will curb market going forward.
B.C.’s housing market will remain “red hot” for much of 2021 with sales and price growth staying elevated and favouring sellers across the province. However, current trends are unsustainable and a move towards a normal market environment is expected in the second half of the year as the pandemic wanes, according to Central 1 Chief Economist, Bryan Yu in his latest B.C. Housing Market Economic Analysis 2021-2023.
“Year-over-year sales growth will explode in the coming months following a doubling of MLS® home sales observed between March 2020 and March 2021, reflecting record levels of current sales and weakness early in the pandemic period,” said Yu. “Elevated sales will persist but annual sales are forecast to contract by about 21 per cent in 2022, with a further decline of about four per cent in 2023,” he added.
The B.C. median home value is forecast to rise 10 per cent this year to $643,000, following a 9.3 per cent increase in 2020. “Headline growth is tempered by flat condo apartment prices, which make up a large share of activity in large urban markets, as detached home prices grow at a faster rate,” said Yu.
Meanwhile, the median provincial price is forecast to grow by 4.2 per cent in 2021 and by 3.0 per cent in 2022. “Price growth will be broadly stronger outside the largest urban markets due to remote workers purchasing homes outside the cities but is expected to rotate back to urban areas as the pandemic wanes,” Yu notes.
He explains that the recent housing market surge has not been fuelled by foreign purchasing, which at 1.5 per cent has been lower than a typical year. Instead, the COVID-19 pandemic created “a perfect storm” in B.C. whereby people working in higher paid sectors of the economy have been able to amass savings for a down payment while working from home and adhering to travel and lifestyle restrictions. In addition, a greater share of the population consists of millennials who are at an age associated with home ownership and growing families, thereby pulling forward purchasing activity by a number of years.
Rapid price growth has heightened calls for government intervention but the federal and provincial policy is shying away from a heavy-handed approach, as indicated by the omission of strict measures in their budgets, according to Yu. He believes the government may need to rely on its macro-prudential measures to tame the market e.g. the Office of the Superintendent of Financial Institutions (OSFI) has proposed a hike in the rate floor to the higher of contract rate plus two per cent or 5.25 per cent which would result in a small cut in potential purchasing power.
“The lack of government intervention may reflect limited tools to temper the market given the surge in activity is driven by domestic buyers who have strong credit and are already subject to a mortgage stress tests, Yu said, adding: “The primary drivers of the current boom are low borrowing costs and a shift in household pandemic preferences. Both are outside the control of policy makers and are expected to naturally wane as the pandemic eases.”
While higher mortgage rates would quickly cool the market, this is unlikely given ongoing economic uncertainties, excess economic slack and anchoring of the Bank of Canada’s policy rate at current levels for the coming year, Yu believes.
In addition, Yu points out: “Inventory is generally plumbing the lowest levels going back at least to 2000 across regions, while sales-to-active listings ratios are at or near record highs, supporting rapid price gains as buyers enter intense bidding wars.”
He comments that the excessive undersupply across the province and long-term population growth will underpin housing market strength over the long term.
In the rental sector, Yu expects to see vacancy rates edge lower as the economy recovers, vaccinations pick up, and post-secondary institutions are re-open to in-person learning in the Fall.
“Vacancy rates slip to 2.2 per cent this year and below two per cent in 2022 and 2023. That said, rent growth will be constrained as the rent freeze has been extended to December 31, 2021,” he said, adding: “The freeze while temporary, limits churn in the market and average rent is forecast to hold flat with a one per cent average increase. Turnovers and an increase in allowable rents are forecast to lift average rent to three per cent in 2022 and four per cent in 2023.”
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Meadhbh Monahan (pronounced ‘Maeve’)