Forecast 2005 and Beyond

CAN HOT HOUSING MARKET LAST?

“Yes, it can,” according to CMHC Market Analyst Robyn Adamache. “Not the hot, hot market we’ve been seeing, with bidding wars, but a more sustainable market.”

Adamache says demand in both new and resale markets continues to be strong. “The market can sustain all of the new construction out there. We’re seeing strong demand for new homes and inventory is still relatively low. Of 11,000 condo units under construction in downtown Vancouver, more than 8000 have been pre-sold.”

Homebuyer groups that are driving the market are investors and first-time buyers, trade-up and move-down buyers, adult lifestyle and recreation, and seniors, with a slight decline in the dominance of the investors and first-time buyers category over the past couple of years. While those in the investors and first-time buyers category are primarily motivated by low mortgage rates, equity bonuses and poor bond yields, trade-up and move-down buyers simply need more or less space. Adamache anticipates market growth in the seniors category in the long term, as couples and singles in their late seventies need help with daily activities and care.

RETURN TO A SELLER'S MARKET IN 2006?

With today’s inflation rate at approximately two per cent and the real five-year mortgage rate close to normal at about five per cent, we’re seeing more competition among lenders, according to Helmut Pastrick, Chief Economist, Central Credit Union. This is good for housing. So are other economic factors that support a continuation of housing expansion, including a declining unemployment rate and forecasted population increases for the region.

Pastrick expects an interest rate cut in 2005. While those of us who holiday in the States enjoy the strengthening Canadian dollar, it’s not good for exports. He predicts that the Canadian dollar will stay within the $0.78-0.82 range for the next few years, forcing the Bank of Canada to lower interest rates.

The recent shift from a seller’s market to a balanced market has caused prices to level off, especially for detached units. Pastrick forecasts that we won’t return to a seller’s market this year but possibly in 2006, when higher sales will contribute to price increases.

What does all of this mean to affordability? Affordability for home purchases has declined but remains generally favourable. “Based on income data, lots of first-timers can afford to get into the market”, says Pastrick.

HUNDREDS OF THOUSANDS OF PEOPLE ARE SLATED TO MOVE HERE IN THE NEXT 20 YEARS!

According to Andrew Ramlo, Director of Urban Futures Incorporated, we can expect a huge influx of migrants to BC in the next 20-30 years and far-reaching implications for housing. With an anticipated Lower Mainland population of 3.3 million by 2024 - from 2.4 million in 2004 - there are many questions he and his demographer colleagues must ask themselves. These questions include “Is there room for us all?” and “What type of housing will we seek?”

There is indeed room for us all, he claims, though occupancy demand will grow even faster than population. The projected 35 per cent population increase will drive a 46 per cent increase in housing demand.

“It’s not about how many but about how,” says Ramlo. He sees apartment living forming a greater proportion of total housing stock but “unless housing preferences change dramatically, ground oriented accommodation will still dominate”.

“We’ll put them everywhere – in new communities and, hopefully, increasingly in family type housing in existing communities,” explains Ramlo. “If not, we’ll need more roads and bridges. But we see it as a land-use issue, not necessarily a transportation issue. For example, in West Vancouver, 50 per cent of homes have empty bedrooms. We see a big opportunity to help people relocate and save the environment while we’re at it. The future of real estate will be determined by the life styles and life cycles of the region’s changing population.”

Adamache, Pastrick and Ramlo spoke at Fear Factor? Forecast 2005 and Beyond, an economic forum held at the Real Estate Board of Greater Vancouver on February 25, 2005.