Vancouver’s housing market could see home prices gradually fall this year while challenges related to housing starts, labour shortages and affordability continue to linger.
The Canada Mortgage and Housing Corporation (CMHC) recently released its Housing Market Outlook report, which outlines forecasts and predictions for Canada’s national housing market and 18 of the country’s largest urban centres, including Vancouver.
According to the report, the average home price in Vancouver is expected to keep increasing, but the pace of growth is anticipated to slow after Q1-2022 and fall below five per cent year-over-year after 2022.
Higher property prices haven’t prompted a rush in new listings from sellers, so the pace of sales is expected to drop from “an unsustainable high.” The decrease in sales will occur throughout 2022 until the total level of sales is slightly below the average for the past five years, according to CMHC.
Housing starts to drop in 2022
This year, total housing starts are predicted to fall but will rise to levels similar to the past five years in 2023.
In 2022, total housing starts will sit between 22,000 and 26,000 units, lower than 2021’s 27,485 starts. The following year, total housing starts are expected to fall between 18,900 and 30,300 homes.
As single-family detached starts continue on a downward trend as the region’s housing density increases, total starts will be dedicated towards apartments. Ground-oriented housing types will be focused on row and semi-detached product. This year, starts for single-detached units will average between 2,700 and 3,300 homes, much lower than the 19,300 to 22,700 units expected for multiple-home types in Vancouver.
For projects that already have acquired land, price growth over the last two years will give those developments “an incentive to move forward,” but labour shortages and supply chain issues will contribute to higher construction costs.
The prospect of the construction industry pushing total starts to ever-higher annual output seems unlikely,” said the CMHC report. “Absorption of new units will also be uncertain as buyers face affordability challenges.”
Rental demand in Vancouver rebounded in 2021 as students, migration and employment improved, factors that will place more pressure on rental supply, especially as homeownership costs stay high. Current construction levels and long development timelines, however, won’t provide much rental relief over the next three years to raise vacancy rates or stimulate competition among property owners to lower rental prices.
Higher interest rates may reduce buyer spending power
Financial obstacles like rising interest rates could create hurdles for Vancouver homebuyers.
Rising interest rates have historically resulted in fewer sales and slower price growth, creating a “major headwind for prospective buyers.” Monthly mortgage payments will rise while the loan amount offered from lenders will fall, dampening buyer spending power, according to CMHC.
However, trouble in national and global markets might reverse the expected increases to rates. If Vancouver homebuyers were insulated from the negative economic effects that tend to coincide with rate cuts, lower rates could stimulate the market.
“If buyers face greater financial obstacles than what we expect, market activity will slow to a greater degree,” said the report. “Historically, it takes several years for inventories and listings to rise to a point where this market sees downward pressure on prices.”
Vancouver is expected to see a growth in immigration and high-skilled, high-wage jobs, but the old challenge of attracting workers to an expensive housing market is emerging again, CMHC noted.
“Vancouver will emerge from the pandemic with a strong economy,” said Braden Batch, senior analyst of market insights. “Immigration will be a major demand driver over the next few years, but a lack of supply at all levels and tightening credit has worsened affordability.”
