30 Sep 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-
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
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.
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.
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
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 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.
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