What Will Happen to Condo Sales in 2012

Monday, January 9th, 2012

2012 MLS Condo Market Forecast

Frank Schliewinsky

This Greater Vancouver Condominium Market Overview for 2012 was compiled by Strategics, a Vancouver-based company providing information and analysis since 1981 helping to minimize marketing risk for apartment condominium developers, lenders, project marketers and investors.

After a year of double-digit increases, expect slower growth in the MLS® multi-family real estate market this coming year.

If you’re confused about what’s in store for the Vancouver condo market in 2012, you’re not alone. The forecasts appearing in the mainstream media are all over the map. The Conference Board predicts a 5% price increase. Merrill Lynch warns of a 10% price correction. TD economist predicts challenging markets, etc, etc. Housing bubble, no housing bubble, prices up, prices down have all been predicted for the Vancouver housing market, so take your pick.
Part of the problem with these diverging forecasts is that none of them are very precise as to what’s being forecast. Even though apartment and townhouse condominiums make up over half the sales (new and resale) in Greater Vancouver, much of the focus has been on the single family market, especially escalating prices in selected submarkets. And few of the forecasts seem to have incorporated two of the most important factors which will influence the Vancouver housing market in 2012: the slowdown in net migration to the Lower Mainland and the deflating real estate bubble in China.

It’s no secret that Mainland Chinese buyers have been the driving force behind price increases seen in selected condo markets over the past 12 months. A major impetus for these buyers has been the desire to invest their money abroad and Vancouver trophy properties and million dollar plus condos have been favourite targets. But sales to wealthy Chinese buyers are likely to decline in 2012. The Chinese real estate bubble, which has stimulated much of the off shore Chinese real estate investments, is deflating at a very rapid rate.

Reports from China indicate a major drop in residential real estate sales and prices (see: China Data: Real Estate Downturn  And, problems in the major Chinese housing markets have increased since mid-2011. Top property developers are reporting major increases in unsold inventories and are under increasing pressures to liquidate these inventories for cash. In Shanghai, developers slashed prices by 25% and similar problems are reported for Beijing and Hong Kong.

A downturn in the Chinese real estate market will have a negative wealth effect on Chinese real estate investors and will redirect their attention to the home front. The same thing happened when the Japanese real estate bubble burst in the early 90’s, and after the Asian economic crises in 1997. The spill over from these crises for the Vancouver condo market resulted in reduced sales and prices. The same thing is likely to happen in response to the problems with the Chinese real estate market.

A general slowdown in the BC economy has already resulted in a net loss in inter provincial migration to BC in 2011 and a 30% drop in international migration. And the drop in net migration will continue into 2012. The combination of slower population growth and a reduction in Chinese property purchases will mean a drop in MLS condo sales in 2012 in most Greater Vancouver markets and fewer million dollar plus sales. This will bring down average prices but will not necessarily result in actual price reductions for individual units.

High Rise Market Forecast

MLS high rise sales did better than expected in 2011 thanks to strong sales during the first half of the year. But sales slowed during the second half and this slowdown is forecast to continue into 2012. Overall, MLS high rise sales in 2012 are forecast to be close to 4,250 units; a 4% decline from 2011.

While there was much media hype about soaring real estate prices during the past 12 months, the average price per square foot for high rise condos sold through MLS increased by 6% in 2011. The average price per square foot controls for unit size and is less affected by sales of large luxury units. The average price per square foot for MLS high rise condos is forecast to increase by 3% to $596 in 2012 for Greater Vancouver as a whole but forecast price changes vary by major market area.

MLS sales in major high rise markets in Downtown and Westside Vancouver, Burnaby and Richmond are all expected to slow in 2012. High rise sales trends in Downtown Vancouver and Burnaby indicate little or no increase from 2011 after experiencing double digit increases in 2011. Fewer MLS high rise sales are expected in Westside Vancouver and Richmond in 2012. Sales in Richmond could be off by as much as 33%.

A decline in average price per square foot is not expected in these high rise markets but the rate of increase will be less than in 2011. However, this could change if investors need to pull their money out of the Vancouver market. Over the past three months there has been a huge increase in the gap between average MLS selling price and average list price for Downtown high rise condos. At the end of 2011, the average selling price for high rise condos in the Downtown market was $639,000 and the average list price was $1,076,000. There’ll be some motivated sellers of downtown luxury condos in 2012.

Low Rise Market Forecast

Looks like the MLS low rise market will give up any gains in sales it made during the past 12 months. Overall MLS low rise sale sin 2012 are forecast to be 4,400 units, a 4% decline from 2011. The average price per square foot for MLS low rise sales increased by 2% in 2011 and is expected to increase by a similar amount in 2012 to $375 per square foot.

Fewer MLS sales of low rise condos are forecast for almost all market areas. If present trends continue, Richmond low rise sales could be off by as much as 18% in 2012 and Coquitlam-Port Moody-PoCo sales could be down by 12%. The only markets showing an increase in sales are North Vancouver and Pitt Meadows-Maple Ridge, but Pitt Meadows-Maple Ridge is such a small market that 26% increase means another 5 sales per month.

The price trend in most low rise markets is fairly flat and the average price per square foot in 2012 will be close to what it was in 2011. The only drop in average price per square foot is likely to be in South Surrey-White Rock. In 2011, the average price per square foot was down by 1% and a 3% decline is forecast for 2012.

Townhouse Market Forecast

MLS townhouse sales have been on a downward trend over the past 12 months and if this continues, MLS townhouse sales in 2012 could be down to 3,700 units; a 11% decline from 2011. A decline in MLS townhouse sales is forecast for all the major markets with increasing declines in Richmond, North Surrey and Langley.

Price increases over the past year in these townhouse markets probably hasn’t helped improve sales but it now looks as if 2012 will be a year of low or no price increases. Overall, the average price per square foot for MLS townhouse condos is forecast to average $316 in 2012; a 1% increase from 2011.

Detailed Market Trends

[Downtown High Rise    [Westside High Rise   [Eastside High Rise

[Burnaby High Rise      [New West High Rise    [Tri-Cities High Rise

[North Van High Rise    [Richmond High Rise     [North Surrey High Rise

[Westside Low Rise      [Eastside Low Rise       [Burnaby Low Rise

[New West Low Rise     [Tri-Cities Low Rise       [Maple Meadows Low Rise

[North Van Low Rise     [Richmond Low Rise     [North Surrey Low Rise

[South Surrey Low Rise     [Langley Low Rise     [Westside Townhouse

[Burnaby Townhouse     [Tri-Cities Townhouse     [Maple Meadows Townhouse

[North Van Townhouse     [Richmond Townhouse     [North Surrey Townhouse

[South Surrey Townhouse    [Langley Townhouse

More detailed information on sales and price trends is available from Strategics for individual markets and sub-markets.  Contact Strategics for more information.

phone/fax  +1-604-608-3192 (voice mail)
email         [email protected]
skype        frank.schliewinsky
mobile       +60-17-429-7064 /+66-81-080-5717


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