Forecast: BC housing sales to jump 20% in 2009; 8% in 2010
Market Strength Extends Through 2010
BCREA Fall 2009 Housing Forecast
BCREA release – The British Columbia Real Estate Association (BCREA) has just released its Fall 2009 Housing Forecast. BC Multiple Listing Service® (MLS®) residential sales are estimated to increase 20% to 82,900 units this year from 68,923 units in 2008. Residential sales in 2010 are forecast to increase a further 8% to 89,600 units. The ten-year average is 82,800 units.
“A sharp rebound in consumer demand turned a potentially dismal year into a very strong year for home sales,” said Cameron Muir, BCREA Chief Economist. “Vancouver and Victoria, in particular, are posting near record unit sales this fall.”
BC interior housing markets are also experiencing robust consumer demand as low mortgage rates and stronger market confidence drive home sales higher.
The average annual MLS® residential price in the province is expected to post a new record this year, rising 2% to $463,200 and is forecast to climb an additional 4% to $482,800 in 2010.
“Recovery in the BC economy will unfold gradually next year,” added Muir. “With sales prices in some markets flirting with record highs, affordability constraints will limit home price inflation over the next year.”
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HOUSING MARKET REBOUND
Residential unit sales on the Multiple Listing Service® (MLS®) in BC are estimated to increase 20% to 82,900 units this year. A sharp rebound in consumer demand, particularly in Victoria, Vancouver and the Fraser Valley, has pushed home sales beyond expectations earlier in the year.
Pent-up demand, low mortgage interest rates and attractive home prices are key drivers in the market.
Consumer confidence is also playing a large role as recovery in the economy is on the horizon.
Prominent differences in regional markets exist. A dramatic rebound in consumer demand on the south coast is in contrast with a more gradual, and arguably sustainable, increase in demand in the interior of the province. Despite weak economic conditions, home sales in Vancouver have recently trended near historically high levels.
Further improvement in consumer demand is expected in the interior and Vancouver Island (outside Victoria).
Housing demand in the major metropolitan markets of the Lower Mainland and Victoria is expected to moderate from the recent highs as a pent-up demand is expended.
The average annual BC MLS® residential price is estimated to increase 2% to $463,200 this year, a record high. However, the increase is largely the result of a greater proportion of home sales this year occurring in BC’s higher priced markets. Next year, a modest increase in the BC MLS® residential prices are forecast, climbing 4% to $482,800. Tighter market conditions in many BC regions will contribute to the gain.
BC’s housing markets have faired extremely well since the beginning of the year. However, higher prices are again eroding affordability in some markets and by all accounts growth in the economy is expected to be at a modest pace next year.
Greater stability in BC’s housing markets is forecast through 2010.
ECONOMIC OUTLOOK
The BC Economy is expected to expand in 2010 after contracting an estimated 2.6% this year. Weak demand for commodities, a strong Canadian dollar and tepid consumer spending will set the stage for the slowest postrecession recovery since the early 1980s. Continuing economic malaise in the US will continue to retard economic growth as imports from BC continue to trend below long term averages.
Total employment in the province is estimated to decline 2.5% this year on an annual basis. Particularly hard hit is the goods producing sector where employment contracted 11% January through October, compared to the same period last year. Manufacturing and construction employment is down 12% over the same period.
Service sector employment is fairing relatively better, declining just 0.2% through October. However, transportation and warehousing employment, part of the service sector, is down 10%, largely the result of its reliance on goods producers. Total employment in BC is forecast to increase a modest 1.6% in 2010.
Once the overhang in US new home inventories draws down, housing starts south of the border should increase from a pace of 500-600k per annum to approximately 1.4 million in order to keep pace with household formation.
However, the increase is likely not to manifest until late in 2010. Demand for commodities is also expected to increase next year, but at a pace equivalent to the slow recovery in the global economy.
A dramatic rebound in home sales would suggest a corresponding increase in retail sales. However, retail sales have improved only modestly, signaling overall consumer demand has yet to return to normalcy. After declining an estimated 6.7% this year, retail sales are forecast to grow by a relatively modest 4.5% in 2010. Home sales on south coast are expected to moderate from current record levels, as waning pent-up demand and eroding affordability come into play next year.
Broad recovery in the BC economy is expected to be a rather slow and arduous affair. As a result, the economy could be many quarters out of a technical recession before there is any significant decline in the unemployment rate.
Net migration is not only an important component to the economy, but vital to new construction activity, the resale and rental markets. A positive natural rate of increase (births minus deaths) has little impact on household formation until decades after the fact. The largest component of migration stems from international origins. These migrants comprise approximately 90% of all net migrants to the province. Net international migration is forecast to decline 4% to 52,500 individuals this year, and then increase 6% to 55,900 individuals in 2010. Inter-provincial migration is largely influenced by the relative strength of provincial economies. The current economic climate has made employment opportunities relatively scarce in all provinces. Net inter-provincial migration is forecast to decline 32% to 5,700 this year and increase 9% to 6,200 individuals in 2009.
HOUSING STARTS
BC housing starts were on track earlier in the year to record their worst performance since 1962. However, recent increases in new construction activity are estimated to boost the annual total to match the year 2000. The sharp pull-back in housing starts corresponded with the financial crisis and the global recession. A sharp decline in consumer demand, rising inventories of complete and unoccupied units and tighter credit conditions virtually stalled building permits during the first half of the year.
Low mortgage interest rates combined with price adjustments contributed to a recent surge in home sales and many builders are now experiencing a decline of their inventories.
While housing starts are expected to climb next year, as builders respond to the stronger market conditions, the overall level of new construction activity will be relatively low compared to the past several years. Consumer demand can change quickly and new home construction typically lags market changes. This is particularly prominent with large condominium projects.
Housing starts in the province are estimated to total 14,400 units this year, a 58% decline over 2008. The sharpest decline is in multiple starts, where a 65% decline is expected. Next year, BC housing starts are forecast to increase 46% to 21,000 units. However, this level is considerably less than the 34,321 units started in 2008.
REAL ESTATE BOARD OF GREATER VANCOUVER
The Vancouver housing market experienced a dramatic rebound this year. MLS® residential sales increased threefold January to October on a seasonally adjusted basis, and is trending on record levels. A marked increase in affordability during the spring induced many potential buyers into the market and the resulting momentum quickly turned a buyer’s market into a seller’s market with upward pressure on home prices.
Rising home prices are again eroding affordability and the demand that welled up last winter during the height of the financial crisis is now largely expended. This means the pace of home sales recorded this autumn will likely moderate over the coming months. However, despite some moderation in consumer demand, home sales in Greater Vancouver are expected to remain relatively strong through 2010. After posting an estimated 41% increase to 35,500 units this year, home sales are forecast rise an additional 5% to 37,100 units in 2010, well above the ten-year average of 33,000 units.
The annual average MLS® residential sales price in Greater Vancouver is estimated to decline 1% to $586,000 this year. This reflects the cyclical low recorded early in the year and the recent price acceleration. The average annual price is forecast to rise 6% to $620,000 in 2010.
However, much of the increase will have occurred by the end of this year, with greater stability in home prices expected next year.
Housing starts in the Vancouver CMA are estimated to fall to their lowest in more than four decades this year. A sharp decline in units under construction and inventory levels that peaked at a relatively low level is setting the stage for home builders to ramp up production in 2010. The lag between conception and completion of new housing may create a period of under-supply in the new home market. This condition will help underpin price levels in both the new and resale markets in Greater Vancouver.
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