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H o u s i n g M a r k e t I n f o r m a t i o n Housing Market Outlook Vancouver and Abbotsford CMAs C a n a d a M o r t g a g e a n d H o u s i n g C o r p o r a t i o n Date Released: Fall 2014 Highlights
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H o u s i n g M a r k e t I n f o r m a t i o n Housing Market Outlook Vancouver and Abbotsford CMAs C a n a d a M o r t g a g e a n d H o u s i n g C o r p o r a t i o n Date Released: Fall 2014 Highlights Housing starts to remain steady at 18,700 and 19,250 units in 2015 and , respectively; Employment gains to bolster net migration and support total housing demand; MLS sales are forecast to remain above the 15-year average in 2015 and 2016; MLS resale prices are also expected to rise over the forecast period. With a shift in demand towards less costly housing options, the increase in the overall average MLS price is expected to be moderate; and Figure 1 Table of Contents 1 Vancouver Highlights 2 Vancouver CMA: Housing Starts Steady 3 Momentum to Sustain MLS Resale Market 5 Demand for Rental Housing Steadfast 6 Economic Outlook 8 Trends at a Glance 9 Abbotsford-Mission Highlights 13 Trends at a Glance 16 Methodology Vancouver CMA Housing Starts to Remain Steady Vancouver CMA Housing Starts, Units 25,000 20,000 15,000 10,000 5,000 0 Source: CMHC f 2015f 2016f Subscribe Now! Access CMHC s Market Analysis Centre publications quickly and conveniently on the Order Desk at View, print, download or subscribe to get market information ed to you on the day it is released. CMHC s electronic suite of national standardized products is available for free. 1 The forecasts included in this document are based on information available as of October 22, 2014 Housing market intelligence you can count on Steady rental housing demand to keep purpose-built rental apartment vacancy rate low. Figure 2 City of Vancouver: Mortgage helpers a prevailing trend Vancouver CMA: Housing Starts Steady Housing starts in the Vancouver Census Metropolitan Area (CMA) are forecast to remain steady in 2015 before moving higher in More stability in the job market and stronger sales and prices in the resale housing market support the outlook for new home construction activity. As well, relatively low mortgage interest rates and steady household formation help buttress new construction activity. Expectations are for housing starts to total 18,700 and 19,250 units in 2015 and 2016, respectively, compared to an estimated 18,900 units in New condominium as well as rental apartments will continue to drive multiple-family housing starts over the forecast period, particularly in areas like the Cities of Vancouver, Burnaby, Richmond, and Coquitlam. Increasing sales of new construction apartments have and will encourage the launch of more condominium projects. Likewise, an expected, sustained rental vacancy rate of below two per cent will continue to encourage more purposebuilt rental apartments, especially in the City of Vancouver. In the first eight months of 2014, a total of 602 purpose-built rental apartment units were started in the Vancouver CMA. Of these, 351 units were in the City of Vancouver and the remainder were Units started for every 10 homeowner single-detached started Source: CMHC January - August in the City of North Vancouver and the University Endowment Lands. Building permit applications have been approved for at least another 700 purpose-built rental apartment units in the Vancouver CMA, which will likely be started during the next two years. 2 Mortgage helpers, such as laneway homes and accessory suites, will also help bolster new construction numbers, especially in the City of Vancouver where single-detached homes average well over $1 million. The majority of new singledetached homes started in the City of Vancouver have some form of mortgage helper, effectively making the single-detached homes lowerdensity, multiple-family dwellings 3. To illustrate, for every 10 homeowner single-detached home started during 10.9 Accessory Suite Laneway House the first eight months of 2014 in the City of Vancouver, there were approximately eight mortgage helpers started alongside. 4 Other than the City of Vancouver, mortgage helpers have also been favoured in other cities, such as Surrey, Coquitlam, and Burnaby. This trend will continue over the next two years. Rising existing property values against moderating prices for newly completed homes will shift new construction activity in favour of higher-density, multiple-family housing from lower-density dwellings. Much of the new residential construction in the Vancouver CMA, particularly for new single-detached housing starts in the City of Vancouver and its immediate surrounding municipalities, are infill construction and require the acquisition of an existing structure 5. 2 CMHC. Further down the development timeline, building and development permit applications have been submitted for more than 1,600 market rental units (Source: Green Sheet Construction Data) 3 CMHC Starts and Completions Survey 4 A fraction of laneway homes were in-fill structures to existing single-detached homes. 5 For the period Jan 2013 through Sep 2014, there were approximately 1,550 single-detached demolished and 1,440 homeowner single-detached started in the City of Vancouver; about 320 single-detached demolished and 263 homeowner single-detached started in North Vancouver City and District Municipality; about 440 single-detached demolished and 549 homeowner single-detached started in the City of Richmond. (Source: CMHC Starts and Completions Survey; Green Sheet Construction Data) 2 Some recent developments along the Cambie corridor in the City of Vancouver also support this shift towards higher density development; it is easier to spread the cost to build over a higher number of new units than fewer. With prices of resale properties (as indicated by MLS House Price Index 6 ) rising at a time when newly constructed homes face softer prices (as indicated by New Home Price Index), lower density development is expected to pull back somewhat over the next two years. Decreased completions, together with increased absorptions, have nudged the overall inventory of completed and unabsorbed housing lower to 2.6 from 3.2 months of supply a year ago 7. For condominium apartments, the inventory of completed and unabsorbed units stood at 2.3 months of supply as of September 30, The CMHC Market Absorption Survey only records both inventories and absorptions upon completion. When pre-completion inventories and sales are taken into consideration, the number of unsold condominium apartment units stood at 12.1 months of supply as of 2014 Q2, down from 17.2 months 8 a year ago. Sales performance was strongest for condominium apartment projects that were priced under $600 per square feet. 9 Momentum to Sustain MLS Resale Market 10 The MLS resale market recorded rising sales and prices during the first nine months of 2014, compared to the same period of Pent-up demand drove sales in areas like the Cities of Vancouver, Richmond, and Coquitlam; together, these three cities accounted for 51 per cent of the 3,829 increase in number of sales in the REBGV area. Single-detached homes recorded a rising share of total MLS sales during the first five months of 2014, pushing the MLS average price for all home types higher. The average MLS price rose to $809,239 in Aug 2014 from $761,528 a year ago. Since June 2014, however, higher single-detached prices Figure 3 New House Price Index, Vancouver CMA (Jul 2013 = 1.00) Declining Prices and Rising Costs MLS Home Price Index, Lower Mainland (Jul 2013 = 1.00) have curbed the increase in singledetached sales as a share of total MLS sales is projected to end on a high note for the resale market with 32,800 sales and an average price of $811,000, increases of 13 and 6 per cent, respectively. Demand for single-detached homes comes from a few different clienteles. There are those who are end-users and those who are investors and developers. While there have been a few instances when investors and developers acquired a whole block of single-detached homes for the development of condominium apartments and townhouses, much of the single-detached acquisitions by developers are still for single- Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Source: CMHC, adapted from Statistics Canada and REBGV. Both indices refer to all housing types. 6 The MLS HPI was developed by five of Canada s largest real estate boards Greater Vancouver, Fraser Valley, Calgary, Toronto and Montreal and the Canadian Real Estate Association. It is modelled on the Consumer Price Index (CPI) but instead of measuring goods and services, the HPI measures the change in the price of housing features. Thus, the HPI measures typical, pure price change (inflation or deflation). 7 All property types (single-detached, semi-detached, row, apartment). Calculated as current inventory of completed and unabsorbed housing units divided by the 6-month moving average of number of completed housing units absorbed. Source: CMHC Market Absorption Survey. 8 CMHC, adapted from MPC Intelligence. 9 CMHC, adapted from MPC Intelligence. 10 This section deals with the resale market in the Real Estate Board of Greater Vancouver (REBGV) area. This area does not include Surrey, Langley, White Rock, or North Delta. Please see the Fraser Valley resale section of this report for commentary on these communities as well as the Abbotsford-Mission CMA. 3 detached home construction 11. With single-detached home developers facing rising costs of acquiring an existing property and declining prices for their newly completed projects simultaneously, end-user buyers will likely face less competition from developers, particularly for the older, less costly fixer-upper single-detached homes. Fig 5 illustrates this with a City of Vancouver example. Looking ahead, existing home sales are projected to ride the 2014 momentum into much of 2015 before anticipated higher interest rates take some steam away towards the latter part of The sales forecasts for both 2015 and 2016 are above the 15-year average of about 31,300 sales. Higher levels of migration as well as steadier employment growth will drive this demand. With the elimination of of investor and entrepreneur immigration categories in 2014 for all provinces except Quebec, the composition of immigrants is expected to show some shifts away from pure high networth applicants to skilled labour. 12 At its peak, there were about 1,719 investor and entrepreneur principle applicants (households) in This change affects mostly the enduser homebuyer behaviour; foreign investment in Vancouver real estate is still allowed. Figure 4 Higher single-detached prices push demand to more affordable housing types REBGV MLS HPI, Single-detached (Jan 2005=100) Share of REBGV MLS Sales, Single-detached Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Source: CMHC, adapted REBGV. HPI refers to Home Price Index. Figure 5 Jan Aug 2011 Jan Aug 2014 City of Vancouver: Prices for Single-detached homes by Age Property Age 30 years or older 0 to 1 years old Average MLS Price Sold/List Price Ratio Average MLS Price Sold/List Price Ratio House Square footage Westside $1.5MM 1.04 $2.3MM ,835 Eastside $756K 1.02 $938K ,025 Westside $1.6MM 1.00 $2.5MM ,935 Eastside $895K 1.01 $1.3MM ,704 The average MLS price is forecast to post more muted gains in 2015 and Higher resale prices will continue to shift demand towards lower-priced options, i.e. from singledetached homes to townhouses and apartments, and from more expensive markets within the Vancouver CMA * MLS List Price Source: CMHC, adapted from REBGV to less expensive neighbourhoods further away from the city core, including markets in the Fraser Valley Real Estate Board area. More sellers are expected to list their properties in response to stronger sales and prices. Overall, the MLS resale market will average out in balanced market conditions in 2015 and 2016, suggesting price stability over the forecast period. 11 The Cambie corridor is one of the starkest examples in recent history. Whole blocks of single-detached homes were acquired for the development of multiplefamily projects like condominium townhouses and apartments. Some of these are still waiting for rezoning and development permits to be issued (Source: Green Sheet Construction Data). 12 Higher language requirements, modifications to the Federal Skilled Worker Programme, as well as the creation of the Federal Skilled Trades Programme all point to the preference for skilled immigrants going forward. 4 Demand for Rental Housing Steadfast The purpose-built rental apartment vacancy rate for the Vancouver CMA is forecast to edge lower to 1.8 per cent in 2015 and hold steady in 2016 from a projected 1.9 per cent in More opportunities in the job market will help bolster net migration to the region. With the aforementioned changes to the composition of international immigrants, new immigrants are more likely to rent than buy their first home in a new area, which was the norm prior to the elevated numbers of investor and entrepreneur immigrants recorded during 2005 to As well, full-time employment for the 15 to 24 age cohort, has improved since Feb 2014; people in the age cohort tend to be renters rather than homeowners. Even with the recent increase in rental housing construction, demand will be sufficient to hold vacancy rates steady over the forecast period. As new purpose-built rental apartments are completed, a portion of the older stock will likely to be retired temporarily for renovations and upgrades, keeping the available rental stock relatively steady. During the first eight months of 2014, the number of purpose-built rental apartments completed was 172 units, down from 256 units during the same period a year ago. Apart from the purpose-built rental units, renters in the Vancouver CMA are also served by a significant secondary rental market consisting Figure 6 Growth of Purpose-built Rental Apartment Stock, Rented & Vacant 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Source: CMHC Vancouver CMA purpose-built rental apartments: Supply and demand remain in balance of rental condominium apartments, accessory suites, laneway homes, and other forms of housing. There were approximately 51,224 rental condominium apartments that were rented or available for rent in Oct 2013 in the Vancouver CMA. 13 Demand for these rental units has also been steady, as evidenced by vacancy rates that have been below two per cent since Oct Although the vacancy rate for the other secondary rental market housing is not available, approximately 104,923 households were estimated to be residing in such. 14 Average rents are projected to edge higher over the forecast period. As new and renovated rental units are added to the existing stock, the higher rents commanded by these upgraded units will push the Purpose-built Rental Apartment Vacancy Rate 2.5% 2.0% 1.5% 1.0% 0.5% overall average rents higher. New or renovated rental units tend to have amenities like in-suite laundry and condominium-quality fixtures that are highly desirable to renters. Since purpose-built rental apartments provide the most economical form of accommodation in the Vancouver CMA, the increased availability of such condominium-quality purposebuilt rental units will also pose some competition for the secondary rental market and exert a moderating force on the magnitude of secondary market rent increases. Depending on the bedroom type, the average rent of rental condominium apartments was about 23 per cent to 28 per cent higher than purpose-built rental apartments. 15 As the composition of the rental stock changes, the differential is expected to narrow gradually. 13 Rental Market Report, Vancouver and Abbotsford-Mission CMAs, Fall Occupied rental single-detached, semi-detached and townhouses, and other forms of accessory suites. Rental Market Report, Vancouver and Abbotsford-Mission CMAs, Fall Rental Market Report, Vancouver and Abbotsford-Mission CMAs, Fall Economic Outlook to Support Housing Demand Employment and population changes are two of the key drivers behind housing demand in the Vancouver CMA. Full-time job gains often leads homeownership demand as purchasing a home is a major decision and requires some income stability for most to undertake. Total employment in the Vancouver CMA has been trending higher in 2014, showing a 2.3 per cent increase year-to-date. For the year, employment is projected to post a 1.8 per cent growth in Full-time employment growth gained traction for all age groups since Apr 2014, especially for the 25 to 44 age cohort. Full-time employment for this age cohort has increased 5.1 per cent since Jan Comparatively, fulltime employment gains over the same period for the 15 to 24 and the 45 to 64 age cohorts were 4.8 and 0.8 per cent, respectively. People in the 25 to 44 age cohort tend to be the most likely first-time homebuyer group in the Vancouver CMA. Most of the employment gains in 2014, however, have been in generally lowerpaying occupations such as those in business, finance, and administrative positions, occupations unique to processing, manufacturing, and utilities, and jobs in the trades, transportation, and equipment operation. This supports our outlook for stronger interests in more affordable housing options over the forecast period. In fact, real average weekly earnings have steadily declined during the past ten months; real average weekly earnings in Aug 2014 were three per cent lower than they were in Nov This will help support demand for less costly housing options in Looking ahead, a strengthening economy should help full-time employment gain more traction for all age groups. Local social media management company Hootsuite recently completed a successful round of financing and opened a second office in Vancouver with intentions to hire more people in the near future. Additionally, with large companies, Figure 7 Index of Full-time Employment by Age (Sep 2012=1.0) such as Microsoft, Samsung, and Sony Picture Imageworks, looking to increase their presence in the Vancouver CMA, further expansion is anticipated for total employment over the forecast period. Employment conditions will attract and keep people in the Vancouver CMA and support overall housing demand. Full-time employment growth gained traction in 2014 Age Age Age Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Seasonally adjusted Source: CMHC, adapted from Statistics Canada Figure 8 Vancouver CMA: Employment Gains by Occupation Annual Employment Average Weekly Wage ($)* Change (persons) Aug 2013 Aug 2014 Aug 2013 Aug 2014 Management occupations -11,000 1,100 1,524 1,537 Business, finance and administrative occupations -23,800 26, Natural and applied sciences and related occupations 4,300 1,400 1,270 1,277 Health occupations 8,800-12,900 1, Occupations in social science, education, government service and religion -1,600-3,600 1,010 1,027 Occupations in art, culture, recreation and sport 6,300 9, Sales and service occupations 8,300-2, Trades, transport and equipment operators and related occupations 5,400 10,600 1,040 1,047 Occupations unique to primary industry -1,400-4, Occupations unique to processing, manufacturing and utilities -4,000 11, * Average weekly wage by occupation in British Columbia Source: CMHC, adapted from Statistics Canada 6 Population growth in the Vancouver CMA is largely driven by international migration. The majority of people moving to British Columbia, especially for those from foreign countries, choose to live in the Vancouver CMA. Following three consecutive years of decline, net migration is forecast to increase approximately 11 per cent in 2014 to 26,500 before posting more moderate gains over the forecast period. Mortgage Rates Consistent with the view of Canadian economic forecasters, CMHC expects interest rates to remain unchanged until the latter parts of 2015 and then begin to increase gradually. Gradual increases in mortgage rates from historic lows are not expected to significantly impact housing demand. According to CMHC s base case scenario for 2014, CMHC expects the one-year mortgage rate to be in the 3.00 to 3.25 per cent range, while t
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