With continued demand for apartments and townhomes in Metro Vancouver’s resale market, prices are forecast to march upwards over the next two years, says the Canada Mortgage and Housing Corporation (CMHC).
Prices are expected to climb thanks to strong sales activity, a moderate amount of new listings and low resale inventories, according to the CMHC’s annual Housing Market Outlook, published last week.
“The apartment and townhouse segment is where most first-time buyers can be active. It’s where move-up buyers… are going to be active and we do see strong demand there, and we see that continuing due to the population growth in the region,” Eric Bond, CMHC’s Principal, Market Analysis for Vancouver, tells BuzzBuzzNews.
CMHC’s outlook provides a two-year forecast of housing starts, sales, prices and key economic indicators in regions and cities across the nation.
In contrast to the resale apartment and townhouse segments, single-detached home prices are expected to see reduced pressure in 2018 and 2019 due to fewer sales, increased new listings and rising inventories.
“You have a higher level of activity that’s expected in the apartment/condominium and townhouse segments and then a lower level of activity in the single-detached segment, largely due to affordability reasons,” says Bond.
With this disparity in the resale housing segments, CMHC says the region’s resale market will continue to operate in “two speed mode” over the next two years, a trend that began in mid-2016.
In Metro Vancouver’s new home market, Bond says demand for housing will be fueled by relatively low mortgage rates, solid population growth and increased employment opportunities during the next two years.
Construction starts are expected to ease next year and in 2019 compared to record-highs achieved last year.
The CMHC predicts a total of 25,225 housing starts this year, followed by 23,125 starts in 2018 and 21,340 in 2019.
Despite the projected annual slowdown, starts will still exceed the 10-year average of 18,746 over the next two years.
CMHC attributes the continued elevated pace of construction to low inventory levels of both new and existing homes, along with strong economic and demographic fundamentals.
Metro Vancouver’s rental market is also expected to see elevated demand over the next two years, with increased net migration and a continued imbalance between incomes and home prices.
The rental market will experience additional pressure from rising prices in the new and resale markets, says CMHC. Increased prices — especially for more affordable, entry-level condos — will decrease the amount of renters moving into homeownership, as it will take households longer to save for a down payment.
“We do expect demand for rental apartments to remain high, which will result in continued low vacancy rates and then upward pressure on rents,” says Bond.
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According to CMHC, there are some risks that may affect the forecast for Metro Vancouver’s housing market over the next two years.
One of these risks is the impending rule changes to Canada’s mortgage regulations.
This month, the Office of the Superintendent of Financial Institutions (OSFI), announced a new mortgage stress test that will come into effect on January 1st, 2018. The new rule will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate, plus an additional two per cent.
Bond says the new mortgage regulations are factored into CMHC’s forecast, as they could impact the amount of buyers entering the market.
“It’s something that might limit housing demand because it could limit the purchasing power of buyers, so we have taken that into account in our forecast,” says Bond.