The housing market collapse in some parts of the US has added uncertainty in consumers’ minds. This unease, combined with slowing economic growth in Central Canada and layoffs in the BC forest industry have contributed to lower levels of consumer confidence. Combined with mortgage rates above year-ago levels, these factors led to a decline in home sales in the first quarter of 2008 and will keep sales flat in the near term.

The supply of resale homes on the market will grow as homeowners look to capitalize on the home equity build-up resulting from four straight years of double-digit home price increases. The decision to sell may take on added urgency in light of the housing market downturn in the US. In the first quarter of 2008, the average number of active MLS® listings for sale in Metro Vancouver increased nine per cent compared to the same period last year, with the supply condominiums for sale increasing more than other home types. At the end of the first quarter there was a five month supply of homes on the market, up from four months. Over the last 10 years, the highest supply was in 1995 when it was at 12 months.

Home building will be robust  new home construction in the Vancouver area will be near historic highs this year and next, but will dip slightly compared to last year’s swift pace. Some moderation in new home building will be due to an easing in demand for new homes as buyers are able to meet their housing needs in the better supplied resale market. Secondly, tightening credit conditions for developers may make it more difficult to secure financing for new multi-family projects.  Home starts will decline 8% this year and a further 3% next. Two thirds of homes built last year were condo projects.

Despite this shift in consumer demand, condo starts will dip 9% from last year’s record high, before trending flat in 2009. Labour shortages and increasing construction costs will also limit new development.

Condominiums and rental outlook positive - Resale Condo Market - existing condo sales will moderate slightly, but stay high for the remainder of 2008 and through 2009. Demand for condominiums will be sustained by the strong fundamentals mentioned above and will also be bolstered by continuing low mortgage rates and the lower price of condo homes. compared to detached. The average MLS price of a condo in Metro Vancouver is now more than $400,000 below the average price of a house.

Expect the supply of condo listings to trend up over the next 18 months as demand moderates. In the first quarter of 2008, the average number of active MLS condo listings for sale increased 16% compared to the same period last year. By end of first quarter, the supply of condos on the market increased to a 4 month supply, up from 3 months a year earlier.  This signals demand and supply are moving towards equilibrium.

New and existing condo prices in Vancouver will continue to rise, but at a slower pace than in the past few years. Price growth will slow into the single digit range this year with 8% appreciation this year and 5% next.

New Vancouver condo construction absorptions of new condos have been closely tracking completions for the past year, with virtually all (98%) units absorbed upon completion. An estimated one half of units underway are pre-sold and the supply of completed, unsold new units is growing slowly but remains at less than one third of the 10 year average level. Unsold supply is located mainly in Maple Ridge/Pitt Meadows and Surrey. Vancouver has very few unsold units.

High starts and longer completion times have pushed the number of condos under construction to record highs, with over 20,000 units underway at the end of March 2008. At the current absorption rate of 600 condos per month, there is a 33 month supply of units coming on stream over the next 2-3 years. When pre-sales is taken into account the number of months supply is halved to 16 months. The supply of unsold new units will edge up as condo demand moderates from the buying frenzy of the past few years and as more resale condo listings become available through the remainder of ‘08 and in 2009.

Speculative and Investor Activity speculation in Vancouver’s condo markets has been trending down over the past year and will continue to edge down as the pace of price growth slows this year and next. In 2007 almost one quarter of condo units in the Metro Vancouver were owned by investors, a marginal dip from 5 years ago. Investor presence is higher in the downtown core, where 45% of condos are investor owned. The more expensive areas of downtown (Coal Harbour and False Creek North) have a slightly lower proportion of investor units compared to less expensive areas.

More than 9 out of 10 investor condos are rented out. Tight vacancy rates in the rental condo market (0.3%) and the purpose-built rental apartment market (0.7%) mean that it is relatively easy to find tenants. However, rents no longer cover monthly mortgage costs for low equity buyers. Investors will be counting more on equity gains to make the investment financially lucrative. As price growth slows investor demand will wane somewhat.

Vancouver Economy will support housing demand solid local economic conditions in Metro Vancouver will support demand for housing this year and next. Economic growth of 3% or better is forecast for the region through 2009 with residential and non residential construction, as well as wholesale and retail trade growth.  Home building will stay at high levels with non-residential construction, including Olympics related projects and non related projects, such as the Vancouver Convention Centre, ongoing work on the Vancouver International Airport and building renovations at UBC, will keep Vancouver’s builders busy.

Consumer spending, the largest component of domestic demand, will be spurred on by a growing population job and income growth. The unemployment rate is at a 20 year low of 4% with 36,000 jobs added in the Metro Vancouver region last year. Strong job growth will continue and will support demand for homeownership and rental housing.

Vancouver’s healthy job market and growing international reputation as a clean, livable city will draw people to the region from other provinces and from abroad.  Greater Vancouver will gain more than 30,000 people through migration in each of the coming years. International migrants will account for most of this growth, but the region will continue to attract people from other provinces who are looking for jobs. This will sustain housing demand.

On the downside, one of the main factors limiting homebuyer demand will be softening consumer sentiment . Consumer confidence is based on the Us economic and housing slowdown, the sub-prime crises in the US and the economic slowdown in central Canada. As well, the high Canadian dollar and low lumber prices in BC. While Metro Vancouver economy is diverse and somewhat insulated from these economic developments, downside risks to the economic outlook remain.

Mortgage Rates will remain relatively flat.

I think this is a realistic overview of the market and a positive one.

What do you think? Are you in agreement with CMHC? Are you planning to purchase real estate in the next 18 months and if so, what? If not, why not?

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