UDI Notes on Current Metro Vancouver Market Trends and Predictions October 17th, 2017

Current Issues & Trends

Wild year in the market

Interest rate increases for first time in long time

  • New mortgage stress tests
  • China money policies
  • Strong demand and increasing prices
  • New price levels hit in all sub markets in last year
  • Normally such a fast price increase would cause fear of an ending. But there are enough factors now to suggest strong fundamentals and continued future demand.

The market so far this year —

Almost all projects launched have been very successful.

  • Demand was strong enough to absorb even more new supply if it were available.
  • Not enough supply being released.
  • Concrete apartment starts. Most new supply in : Burnaby, Vancouver, Richmond.
  • Wood frame apartments. Most new supply in : Tri Cities, Surrey, Richmond.
  • Townhouses starts. Most new supply in : Langley/Cloverdale, Richmond, Surrey.

Comparing prices in 2015 to 2017.

  • Metrotown $700 to $1100 per sq ft for concrete apartments
  • Surrey $330 to $550 for wood frame apartments
  • Richmond $490 to $790 for townhouses

Unit sizing and prices

  • Mt Pleasant units 475 sq ft = $740,000
  • Metrotown units 520 sq ft = $620,000
  • Surrey City Centre units 600 sq ft = $480,000

From perspective of investor buying and renting the unit, break-even equity required:

  • In 2012 equity of $160,000 required
  • In 2017 equity of $340,000 required
    • Investor apparently buying for value appreciation, not rental revenue.

Assignments/ Resales —

Speculator (scalpers) only intention to resale assignment and never close; sell to end buyers / end users…

  • No evidence of major concerns. Only anecdotal cases.
  • Example recent resales (original prices to resale)
    • The MET 2 Burnaby – Up from $ 592 to $1082 per sq ft
    • Alexandrea Court Richmond – Up from $$435 to $691
    • Townhouses Yorkson – Up from $245 to $395 per sq ft

Land market – Price per buildable sq. ft.

  • Vancouver west side / downtown $650 to $750 plus city CACs.
  • Richmond $175 to $180
  • Burnaby $375 to $425
  • Surrey $60 to $80
  • Tri Cities $130 to $140

Possible head winds…

Interest rate increases and more potential in the future

  • Higher rates reduce consumer purchasing power
  • Increase holding costs for developers. And banks don’t like giving land loans.
  • With higher interest rate investor expecting higher cap rates.
    • Mortgage stress test. 200 basis points calculation (reduce buying power by about 18%)
    • China capital restrictions. Impacts in high end single detached house market; not on multi family units.
    • Fatigue and frustration by buyers. Don’t take strong market for granted. Anger by the public.
    • Potential political actions to respond to public complaints might lead to policies that could have negative impacts. Political meddling — Locals first policies, foreign buyers tax, etc

Uncharted Territory…Yes but

Enough positive factors impacting the market to suggest a positive future

  • Strong demand expected to remain due to multiple reasons — Urban migration trends. Vancouver high livability.

Instability in other parts of the world. Population growth much by immigration.

  • Matching immigration numbers and housing starts don’t tell the whole story. Also multi entry visitors visa and student visas are leading to population growth that needs housing.
  • Chinese wealth and Chinese banking system high growth
  • Mortgage free equity. 298,000 mortgage free homes in the region with avg values of $1.3 million = $355 Billion. Many are older and may want to downsize and give money to children.
  • BC strong economic growth.
  • Demand exceeding supply. Number of vacant units standing inventory is virtually zero.
  • We are not over building. Concrete completions on quarterly basis to 2022 is virtually all already sold.
  • Number of sales relative to unsold inventory — switch in late 2015 and strong since then. Indicates not enough supply. Still pent up demand.
  • Project release timelines. Stats demonstrate that in areas with limited supply, prices are going up the most.

Where now…

Condo prices. Don’t think we can continue to sustain more ongoing high increases in prices every year.

  • Expect prices to level off but not drop. Noting that even a price drop correction would still only take away some of the past rapid increase in values
  • Developers should be cautious to not push prices up too much.
  • Need more new projects, faster approvals, more competition.
  • Less fear or missing out. Less assignments. More gradual price increases.
  • Acknowledgement by cities that supply is part of the issues
  • The right product. Shouldn’t have so many luxury products in all neighbourhoods at high prices. More workforce level housing should be provided.
  • Maintain pre-sales confidence. Cancel project or receivership risks to industry.
  • Rental zoning for land to keep land prices lower and allow pricing for rental development.