In contrast to previous cycles, B.C.'s housing market will play a supporting rather than leading role in the coming economic growth phase, according to our latest Central 1 Credit Union economic forecast.
Current home sales are trending at a modest pace near the 10-year average, but demand is being held back by subdued employment growth, weak recreational market demand and tighter mortgage credit conditions. Excess supply in numerous regions is gradually abating, pushing market conditions into balance.
Housing market activity is expected to be lifted by broader economic growth in the coming years but will face a number of headwinds. In particular, gains are limited by successive regulatory changes related to mortgage insurance in recent years and rising mortgage rates. The latter requires higher incomes from some purchasers to qualify for mortgages. Home sales are forecast to move modestly higher over the next four years.
New housing starts, which are more influential for economic growth, are forecast to hold steady this year at about 27,300 new home units across the province, similar to 2013's performance, as fewer Metro Vancouver starts are offset by stronger building activity in other parts of the province. Builders remain cautious in response to still-elevated inventory levels.
Housing activity will pick up in coming years as population growth and a stronger economy drive household formation. Population growth is forecast to trend higher beginning in 2015 as stronger economic growth of nearly 3% lifts both international and interprovincial net migration. Starts are forecast to trend higher and exceed 30,000 units per year by 2015 but remain below highs observed in 2007.
Residential investment growth of 1% will reflect the tempered pace of housing starts and renovation spending as well as a rise in resale transactions this year. Next year's bump in housing starts will drive higher investment spending, before moving back to an annual growth rate of 2 to 3% from 2016 onwards. •
Bryan Yu is an economist at Central 1 Credit Union.
