Prepare for price declines in Vancouver real estate, says CMHC

Photo: Chung Chow

What happened: New forecast calls for significant declines in housing starts, gradual declines in prices

Why it matters: Economic aftershocks of pandemic expected to hit Metro Vancouver for years to come

Metro Vancouver will have to wait until the end of 2020 until housing starts begin to recover, according to the Canada Housing and Mortgage Corporation (CMHC).

A June 23 forecast from the Crown agency also predicts prices will be taking a hit for at least two years.

The latest projections call for housing starts in the metro area to reach between 11,925 and 17,710 units in 2020 as the pandemic slows activity.

That’s down from 23,404 units in 2018 and 28,141 in 2019.

“New construction will be challenged by reduced migration both from other parts of Canada and abroad, loss of household income due to increased unemployment and increased uncertainty regarding the long-run economic impacts of the pandemic affecting confidence in initiating new housing units,” Braden Batch and Eric Bond, analysts at the CMHC, wrote in the forecast for the region.

“Directly preceding the pandemic, however, the Vancouver CMA [census metropolitan area] had registered a new historical peak for housing starts in the first half of 2019 and had begun to trend lower. With an elevated number of units under construction, the industry had been operating at or near capacity. The effect of the pandemic will deepen a decline in construction activity that was already in progress.”

The forecast calls for a recovery in housing starts to begin at the end of 2020, falling in line with economic growth in the region.

“A price decline will occur, but it will take place more gradually over the next two years before showing some recovery late in 2022,” the forecast states.

“Unlike new construction, sales activity had been recovering prior to the onset of the pandemic from a recent low point reached in 2018/2019. The effect of the pandemic will delay this recovery.”

Average Multiple Listing Service (MLS) prices are expected to fall between $892,790 and $918,555 this year, before declining to between $827,760 and $889,455 next year.

The MLS average price hit $923,195 in 2019, already down from the $966,866 in 2018.

Despite projections of a late recovery in 2022, prices are expected to reach $888,580 on the high end in 2022.

“To some degree, the Vancouver ownership markets are less exposed to the impacts of rising unemployment and a closed border, while the rental market is more sensitive to the shock. Real estate buyers tend to be older than renters, therefore they are less likely to have lost their employment as a result of the economic shutdown,” the CMHC forecast states. 

“The brunt of job losses has so far been borne by younger employees who are less likely to have the accumulated savings necessary to buy. The same is true of population growth in the Vancouver CMA, which is largely driven by the influx of young migrants, most of whom are immigrants to Canada.”

The report concludes that immediate declines in migration to Vancouver will reduce rental demand, while a rising vacancy rate is a possibility in the near term.