Frank O’Brien
Other
The current downturn in Metro Vancouver’s housing market won’t continue into 2012, and the recession-like conditions from Vancouver Island to the Kootenays will change to a more balanced market next year.
That’s the premise drawn by Western Investor from hours of interviews and conferences held over the past few weeks as experts tried to forecast an industry that not only defines Vancouver but is perhaps the most important economic engine for both the city and the province.
At the Housing Outlook 2012 conference in Vancouver last month, analysts from Canada Mortgage and Housing Corp. (CMHC) sketched a scenario of suprising stability in the Vancouver and B.C. residential real estate market for next year.
CMHC forecast
The official forecast is for Metro Vancouver resales to rise 9 per cent and the average overall home price to increase 2.2 per cent from 2011 to $805,000. The average detached house price in the Vancouver area is expected to crack above $1.1 million in 2012.
For all of B.C., housing sales are forecast to increase 7.4 per cent, with the average price flatlining at $559,500, after a 3.1 per cent drop this year, according to CMHC.
Provincewide housing starts are expected to fall 2.5 per cent in 2012, to 26,700 units, though CMHC sees Metro Vancouver starts rising nearly 6 per cent next year to 18,000 units, led by condo and townhouses.
Real estate “the driver” in Metro Vancouver’s economy
Partially due to the housing sector, the unemployment rate in Metro Vancouver is forecast to fall to 7 per cent in 2012, from 7.7 per cent this year.
Residential real estate is what keeps the economy here ticking, suggested Andrew Bibby, president and CEO of Grosvenor Americas. “Housing is the driver for Vancouver’s economy,” Bibby told the November Emerging Trends in Real Estate 2012 conference presented by the Urban Land Institute. He told of travelling south through the industrial landscapes of Seattle and California’s Silicon Valley and wondering, “What does Vancouver run on?”
His suggestion that it is housing has merit: this year in Greater Vancouver sales of 33,000 resale homes will generate $26 billion. At the same time, annual new-home construction permits in the Lower Mainland are in the $3 billion range and residential construction directly employs 113,000 people, not counting realtors, mortgage brokers and other soft support. Home renovations are worth another $7 billion to the provincial economy.
“Best global real estate investment”
Another telling conclusion from the Trends conference: the best global real estate investment for 2012 is a single-family detached house in either Vancouver or Toronto. The second is a residential rental property in either city.
So the housing outlook perhaps isn’t just about what you can sell your home for: it is about the economic future of a region.
Which makes the current sales downturn in Metro Vancouver — with MLS sales tracking down for five straight months as of November and cracks showing in the new-home market — the focus of intense interest.
HST confusion
For real estate veteran Ron Toigo, the developer behind one of the most successful residential developments in Metro Vancouver — his Tsawasssen Springs in South Delta — it is all about presenting value. But Toigo echoes concerns of other home builders that confusion over the death of the harmonized sales tax (HST) threatens the new-home industry.
Earlier this year, Toigo presold 20 detached houses at Tsawassen Springs priced from $700,000 each in less than 30 days. But, after the HST was killed in a provincewide referendum this summer, he has stopped all single-detached sales. “Nobody knows how the phase out of the HST will work,” Toigo said.
At a Vancouver Board of Trade conference, Ward McAllister, president and CEO of McAllister Ledingham, a major Metro Vancouver residential developer, blasted how the province has handled the HST.
“This is really hurting us in the new-home business,” said McAllister. “We don’t have any transition rules yet. What is amazing to me is that it took three days to bring this tax in and now they are telling us it will take up to 18 months to unravel it.”
McAllister said “any of our product at $525,000 or over is just sitting.” That is the price range where there are no HST rebates. Developers are forced to make deals and discount prices, he said. The former president of the Urban Development Institute said the development industry has been “begging” for clear transition rules on the HST.
(Click here to calculate the difference between HST and GST/PST on the cost of a new home.)
A report on the west side of Vancouver new-condo market, the most expensive in Canada, confirmed that sales of new product has been declining since the HST was voted out on July 1. With 1,233 new condominiums unsold and another 4,151 units planned, sales of new condos in the market are averaging 112 per month with “the sales trend slowing through the summer and fall months of 2011,” according to MPC Intelligence. MPC, which monitors the new-home market, said the HST repeal is “negatively affecting sales of higher-end inventory.”
Still, the overall inventory of new and unsold condos in Metro Vancouver is falling, according to CMHC, with about 1,300 in the current market.
MPC said it has begun to see price discounting and buyer incentives at a number of new west side condo projects, but this may reflect aggressive pricing earlier in 2011.
Luxury market strong
All this does not faze Bruce Langois, president of Delta Lands, which is patiently selling the ultra-luxury Residences at Georgia in downtown Vancouver. This is where an $18 million penthouse condo sold early last year and where condo prices start at $1,5000 per square foot, among the highest in North America.
Langois takes the long view. “Think of searching on Google Earth for the best neighbourhoods in the world,” he said. “For the wealthy, who can buy anywhere they want, it is a very short list. And Vancouver is right at the top of that list.”
According to Citizenship and Immigration Canada, there is backlog of more than 300,000 Chinese residents who want to immigrate to Canada, and Vancouver is the preferred choice for investor immigrants, who must prove cash assets of $1.6 million. This year, an estimated 45,000 immigrants will arrive in Metro Vancouver, a level that should continue for years, according to CMHC.
Langois said he has no doubt that he can find buyers for the 40 luxury homes at the Residences of Georgia. Confidence is also seen in the new-detached market. Buyers lined up in the rain for hours last month to buy new $600,000-plus houses in Coquitlam, according to a spokesperson for Morningside Homes, which sold 14 new houses in less than four hours.
Fraser Valley
A buyer’s market has become entrenched in the Fraser Valley over the past few months, a signal of what is happening the farther one gets from Vancouver. As of November, there were more than 10,000 homes for sale in the Valley — and 2,400 new listings added — but sales were averaging just 1,120 per month. While prices are higher than a year earlier, they have been falling month-over-month since early summer.
“What’s happening is that there is a large amount of inventory available in the Fraser Valley, in particular with condos and townhomes, and that’s what’s holding prices in check,” said board president Sukh Sidhu. It now takes two-and-a-half months, on average, to sell a Fraser Valley condominium apartment, he noted.
Surrey realtor Brent Roberts said the primary glut of unsold condos is in north Surrey’s Central City and Whalley areas, where a rush of new construction greeted plans for a new city hall, library and RCMP headquarters.
“People thought they could buy pre-sales and then flip them for a profit,” Roberts said. “I know one investor sitting with 14 of them.” The result has been price discounts, with some new one-bedroom condos selling for around $140,000, he added.
CMHC does not see a quick recovery in the Fraser Valley, forecasting a 3 per cent drop in MLS sales in 2012, and no increase in prices. In Abbotsford, sales are forecast to fall 11 per cent this year and a further 4 per cent next year.
Victoria
B.C.’s capital city will see a modest recovery in 2012 after watching housing sales decline for three straight years. Total MLS sales are forecast to increase 6.8 per cent next year, while average resale home prices will remain nearly unchanged at $505,000, from a year earlier.
Housing starts in Victoria will increase 8.8 per cent in 2012, but remain below the average over the past four years.
Victoria will continue to have one of the lowest vacancy rates in Canada: 1.4 per cent in 2012 according to CMHC. It also has one of the lowest unemployment rates, at 5.4 per cent projected for 2012.
Kelowna
Both CMHC and Central 1 Credit Union are forecasting a weak recovery in the Central Okanagan, where sales have been falling steadily for three years, with resales down 5.4 per cent in 2011. Residential sales in 2012 are expected to come back to around 3,100 units, which would still be below the level of 2009. Prices will flatline at 2011 levels.
Kelowna will be the bright spot, according to CMHC, which sees an 11 per cent leap in resales in 2012 with only a modest increase in the average price of a resale home, which fell 2.6 per cent this year to $512,000.
The Kelowna vacancy rate is easing and is forecast to be 4.5 per cent in 2012, down from 5.5 per cent this year. The upturn hinges on an improvement in the local employment rate, which CMHC sees falling to 7.5 per cent next year, the lowest level since 2009.
The resort market is expected to remain in the doldrums in 2012 due to lack of out-of-province buyers and the HST, which is fully applied to secondary properties, according to Central 1.
As this year ends, blowout sales with price reductions of 50 per cent or more were being offered at Tuscan Villas — condos from $154,900 — one of several Interior resort developments that are in receivership. Some realtors doubt that Kelowna-area housing starts will see the 18 per cent increase forecast by CMHC for next year. “There is a lot of new inventory right across the Okanagan,” said one Vernon real estate agent.
“A breather year”
CMHC regional economist Carol Frketich notes that B.C. will post 2.7 per cent economic growth next year, one of the best in Canada, and mortgage rates will remain near historic lows. This, she said, is evidence that the residential market will be “balanced” in 2012, with a chance for an upturn in northern markets such as Prince George.
Real estate consultant Ozzie Jurock noted outlying markets have been in a down cycle for 15 months, which has now spread to a “sideways-to-down cycle in Vancouver.”
“We look for Vancouver condo sales and prices to slow further, single family prices to stay even and the Interior and Vancouver Island remaining very sluggish,” Jurock said. “2012 is a breather year.”
© 2011 REW. All rights reserved.