Like any market, housing is driven by the laws of supply and demand. Demand is largely determined by buyers’ confidence and population growth. On the supply side, an over-supply will tend to bring prices down, an undersupply will put pressure on to lift prices.
Here are just a few of the factors that we should expect to influence the real estate market in 2017:
More families looking for housing means more demand – and that helps to keeps prices strong. The BC Stats forecast calls for an average of 37,000 additional people in Greater Vancouver for each of the next 25 or so years.
Canadian Dollar Value
Our currency is trading at a significant discount to the US dollar, which makes everything in Canada appear more affordable for most out-of-country purchasers. With the Canadian economy expected to soften a bit this year it is unlikely that Canadian interest rates will rise as much as the US rates are expected to – that will further weaken our dollar for internationals. Notably, the dollar discount is currently about double the Foreign Buyers’ Tax.
A strong economy gives buyers the confidence to make major purchases and life decisions. The BC economy has been the strongest in Canada for the last couple of years. It may soften a bit this year (President Trump may raise some border issues that could affect exporters) but that will likely be offset by the BC government handing out goodies before our provincial election in May – for example the recent no-interest loans to first-time buyers.
Mortgage Interest Rates
Experts have been promising for several years that rates will rise significantly and they haven’t yet. If rates do go up this year it will likely be a very small amount, keeping mortgages quite affordable in historical terms.
Babies are born, teenagers need more room, people get old, some people die, other people get raises and promotions, investing decisions change, the business of life never stops even if the real estate market has a hiccup. So there will always be a certain amount of housing turnover.
Following the shock of the 15% Foreign Buyers’ Tax last year, on the heels of an already slowing market and right before the banks tightened mortgage qualification rules, the number of home sales, particularly detached houses, plummeted. But in spite of temporary market conditions people still need to buy and sell homes, so following any drop in sales, there will be a certain amount of demand backed-up, to be released as soon as confidence returns.
Supply of New Homes
Most of the significant new supply we are seeing is in the multi-family segments, with the total number of single-family detached homes remaining pretty stable.
What Are The Builders Doing?
Builders commit their money and time now and hope for payback in the future – so their level of confidence in the real estate market is an important indicator.
Surprising as it seems given the overall market uncertainty at the end of 2016, the amount of home building started in November 2016 was substantially higher than in the same month a year before.
In Greater Vancouver, the number of single detached houses that started construction in November was 318, up from 292 the previous year. The total number of houses, apartments and townhouses started in November was 2,651, up a whopping 79% from November 2015 (with rentals removed, the number of starts was still up 64% year over year).
So the builders are active and, as usual, most activity was in apartments.
And the number of new housing units on the market is lower than you might think given this building boom. Including condos, the total number of new homes completed but unsold at the end of November ’16 was only 1,294, significantly less than the 1,919 ready and unsold the year before.