A modest recovery in British Columbia’s residential real estate market will continue over the next few years, according to the latest housing forecast from Central 1 Credit Union released December 18.
After a surprising turnaround in resale housing activity in 2013, home sales are expected to rise by a further 6.6% in 2014 to 72,560 units from the 68,085 units forecast to be sold this year. Sales are forecast to rise to 83,750 by 2016.
Much of the growth will be in the Lower Mainland, where about 60% of sales originate, but every region in the province is expected to post improving sales.
Improvements in the real estate market will largely depend on the strength of B.C.’s economic recovery over the next few years. After muted B.C. GDP growth of 1.1% expected in 2013, Central 1 is forecasting the economy to grow 2% in 2014, 3.1% in 2015 and 3.4% in 2016.
Bryan Yu, an economist at Central 1 said, “As we go forward into our forecast, we’re looking for economic growth to drive sales.”
But housing market activity should still increase over the next few years given continued population growth and household formation in B.C. He’s expecting the province’s population to grow by 0.9% in 2014, rising to 1.1% by 2016 with much of the growth coming from increased inflow of immigrants and an end to net interprovincial out-migration of B.C. residents who have largely gone to Alberta in recent years for better job opportunities.
Over the past few years, low interest rates have been a key sustainer of the housing market, but that will likely end over the next few years. Central 1 is forecasting mortgage rates to start rising in 2014 and continue to rise through the 2014-2016 forecast period as both the Bank of Canada’s overnight lending rate and market bond rates edge up.
In its forecast, Central 1 expects posted five-year fixed rate mortgages to edge up to 6.4% by 2016 from 5.2% in 2013. It expects variable rates to start rising in mid-2015 at which time it expects the Bank of Canada to start raising its overnight lending rate to 1.25% after keeping its rate at 1% since September 2010.
Despite the continued recovery, Yu noted several key markets in the real estate market outside the Lower Mainland will still remain below mid-decade levels. Areas like the Thompson-Okanagan and Vancouver Island still have excess inventory built prior to the financial crisis.
“There was a steep drop-off in demand in these areas and they’re still trying to recover,” said Yu. “These are areas that are dependent on external demand, but we do think that will pick up over time. We do think the recreational buyer will return in areas like the Okanagan, and you’ll also see retirees revisit their retirement plans.”
