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Low interest rates, steady immigration levels, and an undiminished desire for home ownership are predicted to remain three of the top drivers in 2014’s residential building industry according to experts at two recent real estate forecast events in Vancouver. And that means positive news for home buyers and developers.
Interest rates
Speaking recently to a sell-out crowd of builders and developers at the Urban Development Institute, Michael Ferreira, managing principal of Urban Analytics made several “bold predictions” for 2014. A continued low interest rate was at the top of the list.
“There’s been a lot of talk about how our current low mortgage rates can’t be the norm. But despite a rise of 50 to 70 basis points over the last few months, my expectation is that low interest rates will prevail through 2014 and possibly well into 2015.”
Many others agree. Carol Frketich, CMHC BC Regional Economist, is one. At the recent CMHC Housing Outlook Conference she also pointed out that five years ago the posted one-year rate was more than double what it is today. That number becomes even more significant in light of the fact that prices of newly built homes in the suburbs — particularly townhouses — have dropped in some areas. Low interest rates and lower prices mean added appeal for younger buyers.
Neil Chrystal, president and CEO of Polygon Homes was this year’s CMHC keynote speaker. He added that earlier this year, discounted mortgages dipped as low as 2.7% – a rate he described as “unbelievable.”
Chrystal also drew spontaneous applause when he suggested the time is right to re-introduce the defunct 30-year amortization because fears of an overheated market creating a housing bubble are unfounded.
He also believes that in Canada, unlike the United States, the desire to own a home will never go out of style. But while he sees current prices as fair and representing excellent value, he also cautioned that many first-time buyers will need to reset their expectations.
“More often than not,” he said, “the first-time buyer is a young couple paying very high rents to live in an area they can’t afford to buy in. The bulk of their income goes to lifestyle, leaving very little extra cash for a down payment. But for the same money, the same couple who’s renting in Yaletown could actually afford to buy in Richmond, and they’d still be only 20 minutes away from their friends and favourite restaurants via the Canada Line.”
Ferreira did caution that BC is losing young people, who are going to other provinces to find jobs and lower-priced homes. Those are the first-time or move-up buyers who would normally buy in the Fraser Valley, and he said this was a trend to watch carefully.
Population
All speakers believe immigration, especially from Asian Pacific countries, will remain strong far into the foreseeable future, with most of those immigrants settling in Metro Vancouver. Why? “Because Vancouver is consistently ranked one of top cities in world, it’s a beautiful city, and it’s a safe city with excellent social infrastructure, health care and education,” Chrystal said.
Michael Ferreira noted that Metro Vancouver is now home to one of the largest Chinese populations outside China. He said it’s no surprise considering approximately 130 direct overseas flights every week and a culturally friendly environment where newcomers can find the food, entertainment, and media they want.
He stressed that it’s a common misconception to think the many investor class immigrants are all high-net-worth individuals. “A lot are middle income: people like ship captains, bus drivers, technicians. And not all of them are buying homes in West Vancouver — they’re buying in places like North Delta, Coquitlam, and Burnaby as well.”
Supply and demand
Ferreira and Chrystal both anticipate that supply will remain somewhat constrained in 2014. Ferreira cautioned there may be more protests over rezoning in established neighbourhoods like Marpole. He suggested that it would be harder to get approval for developments because no one wants to anger residents before the upcoming municipal elections. The coming year, he said, could be “another grinder” for developers, but a good time for buyers.
Like many, he predicts Metro Vancouver’s infatuation with urban master-planned communities will continue. He singled out the redevelopment of the Oakridge and Brentwood malls as two to watch. He’s also keeping a close eye on Trump Tower, which he predicted will be half sold by the end of year, even at $1,500 per square foot.
Other good news for consumers: as more projects continue coming to market, consumers will have greater choice, less pressure to “hurry up and buy” and increasing opportunity to take advantage of enticing incentives offered by developers who are looking to stand out in the marketplace.
And if one of Ferreira’s final predictions comes true, home buyers who purchase now will not only be making a smart financial decision, they’ll be able to proudly fly the flag from their new home when the Vancouver Canucks win this season’s Stanley Cup.
© 2013 Real Estate Weekly