BCREA 2021 Second Quarter Housing Forecast

ECONOMICS

Housing Forecast

Fourth Quarter ? October 2021

After a frenzied start to the year, activity in BC housing markets has settled back to a level that is broadly in-line with long-run trends. The strength of the first half of this year has MLS? sales on track to easily break the previous record for annual sales of 112,425 units set in 2016. We expect that provincial home sales will reach 121,450 units this year.

While we do not anticipate a repeat of the record-setting market of 2021, we do expect housing market activity to remain vigorous in 2022. Our baseline forecast is for a thriving BC economy, with broad-based employment growth and robust consumer demand. While a rise in fixed mortgage rates over the next year and the higher minimum stress test rate implemented earlier this summer will temper demand somewhat, we are forecasting that provincial MLS? home sales will reach 102,750 units in 2022. However, like everything else, that outlook depends on the state of the COVID-19 pandemic. British Columbia has made excellent progress with vaccinations, but cases remain elevated, and the end of the pandemic still seems distant. Consequently, the recovery may still be uneven.

Even with home sales moderating from record levels, market conditions are expected to be extremely tight due to a historically low inventory of listings in the province. Total active listings in BC are currently about 50 per cent below the level needed for long-term balance in markets and rebuilding that inventory is going to take time. This is especially true given that new listings activity has fallen below pre-pandemic levels in recent months. Without a meaningful uptick in new listings activity, and given a strong pace of home sales, housing markets will remain undersupplied and under pressure.

We have seen the consequence of low supply throughout the pandemic, particularly in smaller markets around BC. The average home price in BC is projected to rise 17 per cent in 2021, following a nearly 12 per cent increase in 2020. We do not expect prices to keep up that pace in 2022. We are forecasting a 2.7 per cent increase in the provincial MLS? average price next year as the composition of home sales changes due to normalizing demand for single-family homes and as new listings recover. However, given the state of housing supply, we may continue to see abnormally high upward pressure on certain segments of the housing market.

INSIDE

Economic Outlook ........................................................... 2 Vancouver Island-Coast ............................................. 4 Lower Mainland-Southwest ................................... 6 Thompson-Okanagan................................................... 8 Northern BC ........................................................................10 Kootenay ............................................................................... 12 Tables ........................................................................................14

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BCREA Housing Forecast

October 2021

ECONOMIC OUTLOOK

The rise and rapid spread of the delta variant of the COVID-19 virus has presented a challenge to the global economy, but the recovery in BC remains strong and the provincial economy is set for continued growth in years ahead. We forecast the BC economy will expand by 5.5 per cent this year, followed by 4 per cent growth in 2022. That growth will be fueled by strong consumer spending as historically high savings rates return to normal, as well as a recovering global economy and strong residential and nonresidential investment.

Canadian households are emerging from the COVID-19-induced recession in exceptional financial shape with significant savings on the sidelines waiting to be spent. Indeed, BC households have already shown to be in a mood to spend. However, with limited opportunities in a still constrained service sector, that spending has largely been focused on retail goods.

With BC approaching 85 per cent of its eligible population fully vaccinated, the much-awaited shift in spending towards the service sector should arrive next year. Spending should be boosted by strong growth in provincial employment. As such, we expect household consumption to be a key driver of economic growth over the next year. That will be especially true if BC returns to normalized immigration flows and tourism in 2022.

BC Economic Outlook1

2020 2021F

Real GDP Growth

-3.8%

5.5%

Employment ($millions)

2.5

2.6

Employment Growth

-6.5%

5.8%

Unemployment Rate

9.0%

6.6%

Personal Disposable Income ($billions)

192

201

Personal Disposable Income Growth

-4.0%

5.0%

Average Weekly Wage ($)

1,081

1,120

Weekly Wage Growth

8.1%

3.6%

Retail Sales ($billions)

88

99

Retail Sales Growth

1.3%

13.0%

Average 5-year Fixed Mortgage Rate

1.80-2.99 1.80-2.30

1. Values have been estimated where data has not yet been released.

Source: Statistics Canada and BCREA Economics

2022F

4.0% 2.7 3.0% 5.5% 210 4.5% 1,148 2.5% 104 5.0% 2.30-2.6

We are already seeing an initial uptick in immigration in 2021, and borders opened to fully vaccinated US citizens over the summer. Still, the province's tourism sector is operating at a fraction of its normal capacity and a return of international travellers would go a long way in boosting employment in the service sector back to its pre-pandemic level.

Growth will be further supported by favorable domestic investment trends. Ongoing work in the north related to LNG (liquefied natural gas) and pipeline projects will drive business investment in large capital projects. Those projects accounted for about two-thirds of BC's economic growth in 2019 and should continue

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BCREA Housing Forecast

to help drive growth over the next two years. Moreover, a record year of housing starts means a continued pipeline of residential investment that will keep employment in the construction sector robust. Increased housing supply is sorely needed all over the province, which is experiencing an historic drought in terms of the availability of homes. On the demand side, we anticipate home sales will continue to moderate from a record level in 2021, but 2022 should still see above average sales as the economic recovery rolls on and mortgage rates remain low. We expect fixed mortgage rates to gradually rise back to the pre-pandemic level of about 3 per cent by around 2023 while variable rates will follow the Bank of Canada's timetable. That timetable may depend on whether currently elevated inflation is sustained or a temporary phenomenon. However, given that much of the increase in consumer prices is a function of global supply chain issues rather than an overheated economy, we expect the Bank of Canada will look past current elevated inflation and proceed with caution, especially given the still very uncertain state of the pandemic. Demand for BC's exports, like everything else, depends on the pandemic. One hallmark of the recovery thus far has been the disruption

October 2021

in global supply chains. We have seen those disruptions work to BC's advantage with record high lumber prices through the first half of 2021, but also to its detriment as severe bottlenecks in global trade are constraining the ability for BC exporters to move goods in a timely fashion. Most view those supply disruptions to be temporary, though the uncertainties of the pandemic mean that disruptions in the flow of goods may be the norm for an extended period. As those disruptions are smoothed out, a strong global economic recovery will benefit BC exports and provide a further boost to economic growth. Ultimately, the outlook for economic growth in the province still hinges on one crucial factor ? the COVID-19 pandemic. British Columbia has made excellent progress with vaccinations, but cases and hospitalizations still threaten to overwhelm the healthcare system and that threat can lead to restrictions on businesses and economic activity. Consequently, the recovery may still be uneven, but the good news is that all pandemics end. When COVID-19 ends, we expect the BC economy will enjoy several years of strong economic growth.

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BCREA Housing Forecast

October 2021

VANCOUVER ISLAND-COAST

(VANCOUVER ISLAND REAL ESTATE BOARD / VICTORIA REAL ESTATE BOARD / POWELL RIVER AND SUNSHINE COAST REAL ESTATE BOARD)

Housing markets in the Vancouver Island-Coast region saw an historic surge of demand through the early part of 2021. That surge of demand would be translating to record sales if not for a severe lack of inventory of homes for sale. Indeed, even with that severe drought in the supply of listings, sales are forecast to approach previous record levels in 2021.

out over next year at 2.2 per cent price growth. In the Vancouver Island board area, we are forecasting that the average price will finish this year up 21.1 per cent and will rise 3.4 per cent next year.

Employment in Victoria remains just below its prepandemic level from February 2020. That is the result of a still challenging environment for the service sector and especially the tourism industry, which is so vital to the Island economy. A return to normalized tourism in 2022 with open borders would go a long way in boosting employment in the service sector back to its pre-pandemic level, though the timing of a full and safe re-opening remains uncertain.

While the average five-year fixed mortgage rate is off its record low, it has trended relatively flat in a range of 2-2.2 per cent in the previous quarter. That modest uptick in rates and a tightening of the stress test rate to a minimum of 5.25 per cent for mortgage qualification likely took some demand out of the market earlier this year. We expect mortgage rates will gradually rise over the next 18 months, approaching the pre-pandemic level of about 3 per cent in 2023. As the economy recovers and mortgage rates gradually rise but remain low by historical standards, we expect to see above-average home sales activity in 2022. Our forecast is for MLS? home sales in the Victoria board region to moderate from 9,500 units this year to 8,300 in 2022. Likewise, home sales in the Vancouver Island board region are forecast to be 10,700 units this year before falling back to 8,900 in 2022.

While demand is projected to remain robust, there is no more undersupplied housing market in BC than Vancouver Island, and Victoria in particular. Active listings for all Island markets are about 70 per cent below where they would need to be to ensure balanced growth in home prices.

As a result, market conditions across the Island are exceedingly tight and there has been substantial upward pressure on home prices over the past year. MLS? average home prices are forecast to rise by 14.3 per cent in Victoria this year before flattening

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BCREA Housing Forecast

October 2021

Vancouver Island-Coast

MLS? Unit Sales

Victoria Real Estate Board Single Detached Apartment Townhouse

Vancouver Island Real Estate Board Single Detached Apartment Townhouse

Powell River Sunshine Coast Real Estate Board

Single Detached Condo Single Family Mobile

MLS? Average Price

Victoria Real Estate Board Single Detached Apartment Townhouse

Vancouver Island Real Estate Board Single Detached Apartment Townhouse

Powell River Sunshine Coast Real Estate Board

Single Detached Condo Single Family Mobile

Housing Starts

Victoria CMA Single Multiple

Nanaimo CMA Single Multiple

2020 %

8,060 16.9 4,247 15.8 2,411 9.5 1,053 27.5

9,055 20.1 5,673 13.8

984 4.6 1,181 2.9

2021F %

9,500 17.9 4,600 8.3 3,200 32.7 1,200 13.9

10,700 18.2 6,500 14.6 1,300 32.1 1,360 15.2

2022F %

8,300 -12.6 4,200 -8.7 2,600 -18.8 1,000 -16.7

8,900 -16.8 5,700 -12.3 1,000 -23.1 1,000 -26.4

416 29.6 344 40.4

18 -10 19 -20.8

2020 %

$ 777,993 13 $ 986,557 14 $ 480,402 3.2 $ 613,613 2.6

$ 531,086 8.6 $ 632,555 12.1 $ 301,318 4.8 $ 411,846 5.6

450 8.2 365 6.1

25 38.9 25 31.6

2021F %

$ 889,300 14.3 $ 1,220,000 23.7 $ 554,000 15.3 $ 728,580 18.7

$ 643,200 21.1 $ 811,000 28.2 $ 372,000 23.5 $ 513,600 24.7

400 -11.1 325 -11

20 -20 20 -20

2022F %

$ 909,000 2.2 $ 1,260,000 3.3 $ 578,000 4.3 $ 750,000 2.9

$ 665,200 3.4 $ 830,000 2.3 $ 392,000 5.4 $ 530,000 3.2

$ 420,586 15.8 $ 459,501 14.2 $ 246,656 -4.1 $ 350,597 3.2

2020

3,209 694

2,515

%

-8.3 8.8 -12.1

768 -42.6 300 -2 468 -54.7

$ 502,800 19.5 $ 575,000 25.1 $ 275,000 11.5 $ 380,000 8.4

2021F %

3,900 21.5 800 15.3

3,100 23.3

950 23.7 300 0 650 38.9

$ 504,500 0.3 $ 580,000 0.9 $ 280,000 1.8 $ 385,000 1.3

2022F %

3,625 -7.1 825 3.1

2,800 -9.7

775 -18.4 300 0 475 -26.9

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BCREA Housing Forecast

October 2021

LOWER MAINLAND-SOUTHWEST

(REAL ESTATE BOARD OF GREATER VANCOUVER / FRASER VALLEY REAL ESTATE BOARD / CHILLIWACK AND DISTRICT REAL ESTATE BOARD)

Housing markets across the Lower Mainland-Southwest region of BC are on track to post record sales in 2021 as the BC economy continues to recover from last year's COVID-19induced recession. As the recovery becomes more broadbased in 2022, we anticipate that home sales will remain elevated by historical standards but will decline from this year's record level.

the Fraser Valley area will see a 20.5 per cent growth in prices this year while in Chilliwack, where supply continues to trend at record lows, average prices will close out the year up 21.3 per cent.

Employment in BC has recovered to its pre-pandemic level, but some sectors continue to be held back as the more virulent delta variant of COVID-19 pushes against vaccinations. We are optimistic the recovery in BC will maintain its current strength, though the uncertainties of the pandemic mean the recovery may not be smooth or linear. Supported by growth in high-wage jobs and low mortgage rates, housing demand, though down from the frenetic pace of the spring, remains very strong. We are continuing to see an increased number of buyers searching for more affordable space throughout the Fraser Valley and Chilliwack, which will continue to support high demand for single-detached homes. Moreover, an uptick in immigration numbers for the first half of 2021, and the return of international students signals a boost in demand for condos, particularly near major universities.

Five-year mortgage rates rose off their record lows early in the year, but since then fixed mortgage rates have trended relatively flat in a range of 2-2.2 per cent. That increase and a tightening of the stress test rate to a minimum of 5.25 per cent for mortgage qualification likely took some demand out of the market. Home sales in the Lower Mainland are now trending at about 10-15 per cent above long-run averages and we anticipate they will hold there over the next 12 months. We forecast home sales recorded on MLS? in the Greater Vancouver board area will finish the year at a new record of 43,400 units before moderating to 37,000 units in 2022. Similarly, we expect to see a 35 per cent increase in the Fraser Valley board area in 2021 to a record high of 25,400 units. In the Chilliwack board area, we forecast a record 4,800 unit sales this year before sales return to a more historically normal level of 3,800 sales in 2022.

Even with moderating sales, the inventory of active listings in the Lower Mainland continues to languish. The resulting imbalance led to a year of very strong price increases, but there are signs that prices are flattening out. We expect MLS? average home prices will rise 10.8 per cent in Greater Vancouver in 2021, followed by 1.6 per cent in 2022. As buyers compete for space outside of Greater Vancouver, 26

BCREA Housing Forecast

October 2021

Lower Mainland-Southwest

MLS? Unit Sales

Real Estate Board of Greater Vancouver Single Detached Apartment Townhouse

2020 %

31,611 23.1 10,665 30.4 14,096 13.1

6,140 31.6

2021F %

43,400 37.3 14,500 36 20,000 41.9

8,400 36.8

Fraser Valley Real Estate Board Single Detached Apartment Townhouse

18,871 28.5 8,786 43.2 4,365 6.4 5,387 32.3

25,400 11,100

6,700 6,600

34.6 26.3 53.5 22.5

Chilliwack and District Real Estate Board Single Detached Apartment Townhouse

3,497 25.4 2,048 28.3

452 13.6 900 30.1

4,800 2,760

770 1,100

37.3 34.8 70.3 22.2

MLS? Average Price

2020 %

Real Estate Board of Greater Vancouver $ 1,066,199 8

Single Detached

$ 1,680,000 6.3

Apartment

$ 677,538 2.4

Townhouse

$ 914,583 4.7

2021F %

$ 1,181,400 10.8 $ 1,950,000 16.1 $ 713,000 5.2 $ 1,040,000 13.7

Fraser Valley Real Estate Board Single Detached Apartment Townhouse

$ 826,005 14.4 $ 1,170,000 10.4 $ 407,280 4.1 $ 608,935 5.4

$ 995,200 20.5 $ 1,500,000 28.2 $ 490,580 20.5 $ 751,350 23.4

Chilliwack and District Real Estate Board $

Single Detached

$

Apartment

$

Townhouse

$

577,279 10.3 $ 695,322 7.3 $ 280,969 4.6 $ 462,837 7.8 $

700,100 888,000 346,400 584,870

21.3 27.7 23.3 26.4

Housing Starts

Vancouver CMA Single Multiple

2020

21,565 3,085

18,480

%

-23.4 -10 -25.2

2021F %

27,500 27.5 3,500 13.5

24,000 29.9

Abbotsford CMA Single Multiple

1,110 333 777

-34.5 -5.9 -42

970 -12.6 350 5.1 620 -20.2

Chilliwack CA Single Multiple

674 -45.9 305 -22.4 369 -56.7

1,350 100.3 550 80.3 800 116.8

2022F %

37,000 -14.7 11,920 -17.8 17,600 -12

6,600 -21.4

21,500 -15.4 9,500 -14.4 5,900 -11.9 5,700 -13.6

3,800 -20.8 2,201 -20.3

560 -27.2 900 -18.2

2022F %

$ 1,200,000 1.6 $ 1,995,000 2.3 $ 730,000 2.4 $ 1,065,000 2.4

$ 1,031,600 3.7 $ 1,550,000 3.3 $ 512,000 4.4 $ 777,750 3.5

$ 728,000 4 $ 920,000 3.6 $ 360,000 3.9 $ 600,000 2.6

2022F %

25,000 -9.1 3,000 -14.3

22,000 -8.3

1,000 400 600

3.1 14.3 -3.2

1,300 -3.7

600 9.1

700 -12.5 17

BCREA Housing Forecast

THOMPSON-OKANAGAN

(ASSOCIATION OF INTERIOR REALTORS? / KAMLOOPS & DISTRICT REAL ESTATE ASSOCIATION)

Housing market activity in the Thompson-Okanagan region has moderated from the elevated highs of the spring and home sales are currently trending in-line with long-run average levels. However, the strength of the first half of the year has home sales on pace for a record setting 2021.

Employment growth in Kelowna is recovering from the COVID-19-induced declines of 2020, though another summer of wildfires and limited tourism in addition to stricter COVID-19 protocols has tempered that recovery. The same holds true outside of Kelowna where employment has only recently started to post year-over-year gains in job growth. Despite a challenging economic environment, housing demand has remained strong, in part due to still robust migration into the region. A major theme observed during the pandemic has been the relocation of buyers into less densely populated areas of the province. That trend is evident in how demand has evolved over the past year in the Interior. As a result, markets in the Okanagan and Kamloops are on pace to break the previous annual sale record in 2021. We are forecasting that MLS? home sales will reach a record 13,700 units this year in the Okanagan and will rise 21.6 per cent to a record 3,700 units in Kamloops. While home sales are forecast to decline from record high levels in 2022, a bright outlook for the BC economy is expected to keep sales activity strong across the region despite a projected gradual rise in fixed mortgage rates.

On the supply side, the inventory of homes for sale in the Interior has continued to decline and now sits at alltime lows in both the Okanagan and Kamloops. An initial recovery in new listings activity has now reversed with new listings trending back below pre-pandemic levels. Consequently, even with sales moderating back to long-run trends, market conditions in the region are historically tight. We estimate that active listings would have to rise about 60 per cent to bring markets back into a healthy balance of supply and demand. As a result, MLS? average prices are up considerably across all product types.

An anticipated normalization of listings activity in 2022 and slightly higher fixed mortgage rates should help to ease upward pressure on prices in the region. As a result, we do not anticipate price growth to match the frenzied pace of the past two years that saw prices increase more than 30 per cent. Consequently, we are forecasting the MLS? average price will rise about 2.5 per cent across the Interior and Kamloops in 2022. 28

October 2021

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