B.C. Housing Outlook 2010-2012

Published by the Economics Department, Central 1 Credit Union, 1441 Creekside Drive, Vancouver, B.C. V6J 4S7


Housing market activity in British Columbia is set to

gradually improve over the next two years after deteriorating

sharply for most of 2010. While weak demand is forecast

to persist into early 2011 and lead to further home price

declines, the combination of lower prices and mortgage

rates will act as a catalyst for rising sales through 2012. A

gradual improvement in the economy and modest rates of

household formation will also provide support.

Housing starts also look to edge higher over the forecast

horizon as builders take their cue from the rising activity

in the resale market. However, new home construction will

remain subdued relative to cycle highs observed from 2005-


Housing Sales


After a remarkable turnaround during the last three

quarters of 2009, the pace of home sales in the province

tumbled by more than 40% over the first 8 months of 2010.

In part, the magnitude of the decline was exaggerated


by the unsustainable pace of sales in late 2009 as a surge

of potential buyers, enticed by a year of price declines

and sharp recession induced interest rate cuts, entered

the market.

In 2010, the announcement of more rigid

mortgage insurance rules for both owner-occupied and

investor-owned properties, and the introduction of the

HST pulled forward future buying activity, and resulted in

sharply higher sales and a rebound in prices.


Of course, pulling forward demand meant less demand

to draw from in the future. After the buying binge of 2009,

sales have dropped precipitously and price levels have

declined marginally in recent months.

While sales remain above 2008/09 recession lows, they

are comparable to the weak sales period observed in the

early 1990’s and earlier this decade. Looking forward,

sales are forecast to embark on a rising trend through

2012, but remain low.

This year, home sales, as defined by annual market

arms-length residential transactions, in the province are

expected to fall 7% from 2009 levels. Declines will be led by

a significant cut in apartment condominium sales of 19%.

Single-detached sales will remain relatively flat.

The current downward trend in housing sales is expected

to reach a bottom during the fourth quarter of 2010 and

transition to a moderate upward trend over the remainder

of the forecast horizon.

Initially, this upturn will reflect an increased number of

buyers attracted by lower prices and

near recession low fixed-term mortgage rates. Stronger

demand from the younger first-time buyer segment will

lead to increased sales of multi-family units. Moving

through 2011 and 2012, improved economic conditions,


employment growth, and population gains fuel higher

levels of household formation will further boost home sales.

However, gains will be limited in part by rising mortgage


These factors will lead to sales increases of 5% and

9% in 2011 and 2012. However, overall transactions will

remain 20% below peak levels reached during the 2005 –

2007 period. In addition, sales activity will remain geared

to major urban areas. Markets with a greater reliance

on secondary home sales are expected to take longer

to improve, reflecting continued caution on the part of

consumers regarding discretionary purchases and relatively

high debt loads.

Housing Prices


Downside pressure on home prices is expected to persist

into the first half of 2011 as resale and new home inventories

remain elevated relative to demand. This imbalance will be

rectified as sales trend higher, and the flow of new listings,

which have already dropped sharply from early year highs,

remain low. A gradual downtrend in housing inventory and

rising sales is expected to stabilize price levels. Median price

levels are forecast to slide lower into the second quarter

of 2011 and remain flat before rising near the year’s end.

Lower inventory levels and higher demand is forecast to

push price levels higher through 2012.

While rising prices may induce some sellers to list their

properties, the severe pull-back in housing starts during and

after the recession has meant that growth in the housing

stock has failed to keep pace with household formation

in B.C. This factor will likely contribute to a constrained

housing supply in 2012.

The annual median sales price for an improved residential

property in B.C. is forecast to reach $388,000 this year, up

5% from 2009. However, this gain will reflect higher sales

and prices observed earlier in the year. Annual median

price levels are forecast to decline 5% in 2011 before edging

up 3% in 2012.

While median price levels are an adequate representation

of annual market prices, a superior measure of monthly

price trends is the MLS® Housing Price Index (HPI)

for Greater Vancouver which controls for the quality

characteristics of homes sold. This hedonic price index

estimates the underlying price changes in a constant-quality

dwelling, but is available only for the Greater Vancouver

market. Since peaking above pre-recession levels in April,

the index has declined by 2.7%, despite a rapid decline in

sales activity. Total HPI declines are expected to reach 6%

before stabilizing in 2011.


Housing Starts


Provincial housing starts will end the year 54% higher

in 2010, following a 53% plunge in 2009. Despite the

substantial rebound, only 25,000 dwelling units are forecast

to break ground this year, which, excluding 2009, will mark

the lowest level of activity since 2002. Single-detached

housing starts rose to elevated levels in late 2009 and early

2010 as buyers took advantage of low mortgage rates and

raced to beat the HST. Since April, single-detached starts

have gradually edged lower and will constrain growth in the

new home market in 2011.

Housing starts are forecast to edge up by 3% to 25,500

units in 2011 as increased resale market activity, and some

upward price pressure in the latter stages of the year,

induce increased building activity in the multiple-family

sector. Single-detached housing starts are forecast to pullback

by 11% to 10,500 units. In 2012, starts are forecast to

increase 10% to 28,000 units as builders continue to ramp

up production to better reflect household formation and

population growth. Multiple-family units will experience

larger relative gains given the lower price point for entrylevel


Uncertainty surrounding the future of the HST is a risk to

housing activity through 2011. The recent announcement

of a HST referendum (scheduled for September 24, 2011)

may induce potential homebuyers to hold off on making

home purchases, particularly in the market for new

singledetached homes in large urban areas. These homes are

more likely to be priced above the rebate threshold of

$525,000 and are hence taxed higher than under a no-

HST scenario. Developers may also delay land purchases

and project start dates in response to uncertain demand

conditions. The resale market may be marginally impacted

as the HST is only applicable to acquisition costs such as

broker commissions.


Rental Market


Vacancy rates in British Columbia soared 1.9 percentage

points to reach 3% in 2009. A number of factors contributed

to the increase. The weaker job market, particularly among

younger workers, led to delays in household formation and

possible household contraction as individuals moved back

in with their families or found housemates. In addition,

an increase in privately owned condominium rental units

also shifted activity away from the traditional purposebuilt

market. For those renters secure in their employment,

the sharp drop in mortgage rates provided an incentive to

enter the home ownership market, further putting upward

pressure on vacancy rates.

With the slowdown in home ownership demand, a

rebound in employment levels, and continued positive net

interprovincial and international migration in 2010, the

vacancy rate is forecast to drop to 2.8%. Vacancy rate are

forecast to dip to 2.3% in 2011 and 2% in 2012.


Regional Forecasts


Regional housing markets in B.C. tend to move in the

same direction, reflecting common factors that drive

housing demand such as mortgage rates, national and

global economic conditions and consumer confidence levels.

However, regional markets are also affected by changes in

local economic conditions as well as the structure of local

demand and supply.

Over the forecast horizon, expect housing activity to

be more concentrated in the larger urban markets of

Metro Vancouver and Victoria, reflecting a continuation

of post-recession trends. These areas recorded relatively

lower employment losses during the recession and are less

dependent on buyers of recreational or secondary homes.

Nonetheless, weaker demand in these metro markets

relative to the stronger pace in 2009 will result in 8% fewer

sales in the Lower Mainland/Southwest and Vancouver

Island/Coast development regions. In 2011 and 2012, sales

are expected to rise, but at a moderate pace. Vancouver

Island/Coast sales will average 77% of the sales pace

averaged from 2005 to 2007, while the Lower Mainland/

Southwest activity will grow to 85%.

In contrast, markets outside Metro Vancouver and

Victoria experienced a more muted post-recession rebound

in sales due to weaker labour market conditions and lower

demand for recreational and secondary properties. As a

result, sales declines will generally be more modest.

Thompson/Okanagan sales are expected to dip 5%,

while Cariboo sales will decline 2%. Kootenay region sales

are forecast to drop by a more significant 9%, reflecting

weak demand from the Alberta market and the local labour

market. In 2011 and 2012, sales growth in these regions will

be faster than in the Lower Mainland/Southwest and the

Island. However, overall sales levels will remain weak over

the forecast horizon, averaging only 55% to 60% of 2005-

2007 levels in most markets.

Price growth variations are forecast to mimic regional

market strength. Price declines will extend into 2011 for all


markets. In larger markets, this will mean a partial reversal

of the price gains recorded in the latter part of 2009.

Moving into 2012, price gains will remain modest but be

led by growth in larger urban areas.

Forecast Assumptions


The main assumptions underlying this forecast includes

a gradual but sustained economic growth trajectory,

conducive to modest employment gains, a favourable

mortgage rate environment for consumers, and positive

net-migration similar to recent years.

After a temporary rise during the first quarter on higher

economic growth and inflation expectations, fixed term

mortgage rates have fallen back to or near record low

levels. The national and global economic growth trajectory

has evolved below expectations, sending bond yields and

administered lending rates for products such as mortgages

lower. Posted closed 5-year mortgage rates are forecast to

remain well anchored over the forecast horizon. Posted

rates will range from an average of 5.3% in the first quarter

to 6% in the fourth quarter. Rates are projected to rise

more quickly in 2012 as a reflection of higher growth


Variable rates reflect the prime lending rate, which is

influenced by the Bank of Canada’s determination of its

policy interest rate. The policy rate has been increased 3

times in 2010 in 25 basis point increments, pushing the

rate to 1%. While a further hike is plausible during the

fourth quarter of 2010, the Bank is forecast to leave its rate

unchanged until its March 1 rate setting meeting, when

it commences a series of rate-normalizing hikes through

2012. The target overnight rate is forecast to reach 1.75%

by the end of 2011, marking a 75 basis point increase from

the current level.

Economic growth in B.C. is forecast to strengthen

gradually over the forecast horizon. After reaching growth

of 3.4% in 2010 due to stronger early year activity, growth

will slow to 2.5% in 2011 resulting from a weaker global

growth profile and a continued slowdown in domestic

spending. Growth is forecast to reach 3.3% in 2012.

Jobs lost during the recession have largely been reversed

or replaced during the economic recovery phase. However,

a growing proportion of part-time jobs and slower

economic growth moving forward suggests modest growth

in employment levels. Employment levels are forecast to rise

2.1% in 2010 and 1.9% in 2011. Growth will accelerate

to 2.5% in 2010, reflecting stronger economic growth.

However, wage gains will be limited by sufficient labour

market capacity reflected in elevated unemployment rates.

Pam Martin of Invis, Mortgage Broker – Kelowna,Vernon, Penticton, Okanagan, British Columbia, Canada