From a macro perspective, Canada's economy is going through a rough patch and growth is slowing down. Several variables contribute to this such as the equity markets being off to a historically bad start, the weak Canadian dollar and the oil prices struggling to find a floor. On the bright side, looking at BC's economy allows us to let out a bit of a sigh of relief. There seems to be a multitude of indicators that provide British Columbians with a glimmer of hope as these indicators point to significant momentum underlying our provincial economy.
The pace in which consumer spending and retail sales grew last year was the fastest pace in close to a decade. This key indicator proved to be the largest component of BC's economy. As a result of this, this growth largely reflected markedly improved labour market fundamentals. While employment growth has seen sluggish growth for the past few years, the last six months of 2015 proved to be a stark contrast. Growth was moving at more than a 2% rate over the latter half of the previous year. Full-time employment seeing an increase was the driver spearheading the growth seen.
With the growth demonstrated, it is no surprise that British Columbians were in a spending mood. Not only did consumption goods see an increase in sales but larger paychques and confidence in the BC economy resulted in the third highest year on record for provincial home sales. With the relative strength of the economy in BC, it is no wonder why we are seeing more interprovincial migration with workers moving to BC. Since 2013, there has been a net inflow of more than 30,000 people from other provinces, resulting in population growth and adding to an already strong housing and consumer demand.
With a strong housing demand comes a record low supply of re-sale and new housing in BC. Developers reacted to this lack of supply by breaking ground on over 30,000 new housing units last year making it the highest number of housing starts since 2008. All in all, BC's economy is forecasted to continue being a growth leader in Canada for this year and the years to come.
The Real Estate Board of Greater Vancouver (REBGV) provides us with an easy-to-understand video that depicts the specific insider trends in the housing market. Demand continues to outpace supply across Metro Vancouver resulting in seller market conditions.
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The real estate industry is a key economic driver in BC. Despite the preconceived notions of Vancouverites, the Greater Vancouver housing market is seeing demand for housing slightly outpace the supply. We continue to see incremental gains in home values, depending on the neighbourhood and property type. According to the Real Estate Board of Greater Vancouver (REBGV), residential property sales in the Greater Vancouver area has reached 3,061 in July alone, making it the fourth consecutive month that the Greater Vancouver market has exceeded 3,000 sales (McLeod, 2014). Prior to this upsurge in sales, the housing sales have not surpassed this sales mark since June 2011.
The MLS Home Price Index (HPI) measures home price trends and home price inflation/deflation in residential markets within territories of participating real estate boards in Canada (MLS, 2014). The HPI composite benchmark price for all residential properties in Metro Vancouver is presently at $628,000. For a single family detached unit, the benchmark price is sitting at $980,500. An overview of the property types and their benchmark price in their respective neighbourhood can be found here: MLS Home Price Index. Benchmarks represent a typical property within each market.
All in all, the housing market in the Greater Vancouver region has been steadily picking up and although supply is continually increasing, the demand for housing has slightly outpaced supply.
Below you will find the Residential Average Price in the Greater Vancouver region. As you can see, there has been quite some fluctuation over the past 4.5 years. Residential median prices in July 2014 are sitting at around $805,061.
Metro Vancouver's real estate prices are steadily increasing, making the housing costs less affordable. Despite the decline in fixed mortgage rates, housing affordability in Metro Vancouver is slowly diminishing. The increase in real estate prices is not isolated to Vancouver only as affordability for homes has decreased for the province as a whole. On a more positive note, the market seems to be back on track due to the increase in real estate prices. Not only is it back on track, it appears to be the strongest it's ever been in the past 3 years. While this is great news for the market, it isn't for home buyers. There has been a recent increase in home buyer demand which puts Greater Vancouver in the upper reaches of a balanced housing market.
The graph below shows ownership costs as a percentage of household income. Essentially, it is the percentage of pre-tax income that the average Vancouverite needs to service the costs of owning a home. Condos are the only home type that are an anomaly in the increasing trend in housing prices in that it remains relatively stable in affordability. Owners are spending 39.9% of pre-tax income on condos which is a slight decrease in contrast to the previous quarter. Two-storey housing units are sitting at about 86.5% and bungalows are slightly lower at 82.4%. It is said that the average British Columbian must spend 68.4% of their income for housing.
*Source: RBC Housing Trends and Affordability
For more information on this quarter's current real estate market and economic factors that affect it, check out the Q1 State of the Market Report produced by Urban Analytics Inc.