The Urban Development Institute (UDI) recently held their annual Fraser Valley Forecast Lunch in Surrey.
The event – moderated by Bob Ransford of Counterpoint Communications – featured a panel of industry experts including: Robyn Adamache - Senior Market Analyst, CMHC; our very own Senior Analyst Don R. Campbell; Bryan Yu - Senior Economist, Central 1 Credit Union, and; Scott Brown - President, Fifth Avenue Real Estate Marketing.
Each of the panelists shared their take on the differing market dynamics in the valley, including the widening gap between the prices of detached houses and townhouses and condos. The lack of inclusion of the real estate market in the valley in the big picture discussion on housing affordability in Vancouver was also discussed.
Here are their thoughts:
The Canadian economy is currently in a slump. A shock has been hitting oil producing provinces through capex and wealth channels and national growth has dimmed. Interest rates this year have been going nowhere.
However, heading into 2016, the Bank of Canada will have their first interest rate hike. Lower oil prices and rate divergence will continue to keep the Canadian dollar low over the next three years (below .80 cents). The province’s growth will continue to be bolstered by a reversal in interprovincial outflow from Alberta. Domestic spending will also continue to grow (currently up by 8 percent). US growth is expected to pick up after a poor first quarter with a renewed drive in exports. Residential construction is also forecast to climb.
With a 20 percent population boost expected in Metro Vancouver through 2031 (500,000 new residents), and millennials becoming the largest cohort of buyers since the baby boomers, the current housing pressure is not set to alleviate itself anytime soon. The prices of detached houses, in particular, in the Fraser Valley are expected to be bolstered by families moving east in search of an affordable family home with a yard and white picket fence.
Going into the remainder of this year and into 2016, mortgage rates will continue to stay low and stable. There will be moderate growth in the employment sector, especially with part-time positions. The detached housing market will continue to move prices and the resale market will become more balanced near the end of this year and into early 2016.
Fraser Valley single family home prices have climbed 15 percent since 2008 (or 3 percent annually) with townhomes and condo pricing still in recovery at five percent and 14 percent respectively over the same period. This means that buying a detached home now costs approximately $300,000 more in the Valley versus $200,000 in 2009. Her prediction is that pricing will moderate going into the fall and price gains will be closer to two to three percent in 2016.
There will also continue to be a strong demand for rental accommodation and lowered vacancy rates with 8,510 new households moving to the Fraser Valley each year. With 6700 new starts occurring in Metro Vancouver every year (30 percent in the valley alone), household growth is quickly outpacing new home building. In Chilliwack, housing starts were down two percent last year; Maple Ridge/Pitt Meadows were up 30 percent; Langley was up 1 percent; Surrey was up 62 percent; White Rock was down 30 percent; and Delta was down 15 percent.
Standing home inventory has remained moderate:
- Chilliwack: down 11 percent, detached home inventory is still elevated (less than 50 units currently)
- Abbotsford & Mission: unsold apartment inventory is elevated
- Ridge Meadows: down 24 percent
- Langley: down 25 percent
- Surrey: down 30 percent
- White Rock: inventory is quite scarce; down 51 percent
- Delta: apartment and townhouse inventories are elevated
The resale market is up 30 percent for 2015 with the average number of days on the market hovering at 15 – 20 days. 60 percent of these sales have been detached with prices up 8 percent since 2008.
Going into 2016 the gap between multi-family and single detached homes has widened. A buyer in the Fraser Valley now needs to pay, on average, $300,000 more for a detached home than a townhome and $400,000 for a detached home versus a condo. This price growth will slow in 2016 to between two and three percent.
The rental market continues to be solid (less than .4 percent vacancy) with half of all rentals living in secondary rental accommodations. 23 percent of the rental stock is currently rented out.
Don R. Campbell
A paradigm shift is coming as the buyer demographic changes. Baby boomers are being closely chased by millennials/echo boomers. As the baby boom rental demand goes down, the demand from the millennials is going up as they look to balance affordability and lifestyle. For some, this means micro-suites, for others, it means moving home. When they do buy, they want a well-appointed home that’s new, and if the location is prime, they are willing to pay a premium, even if it means trading square footage for their dream neighborhood. Millennials want to live in the midst of the hustle and bustle of busy urban centers – they want to work, live, and fraternize right outside their front door. They want parks, restaurants, shopping, entertainment, and transit.
What does this mean for developers? It means that they need to start changing their zoning and mentality to consider Walk Score®. With studies showing that rents are 60 percent higher within 80 meters of a station, proximity to transportation centers is a very important factor for millennial renters.
With upwards of 10,000 new residents expected in Surrey’s City Center next year, the development community needs to be disciplined enough to manage the supply and continue to elevate it. It also needs to stop assuming that buyers in the Valley don’t want quality. Instead, builders need to find a balance between urbanization and country living. He shared that 95 percent of the 600 multi-family units Fifth Avenue Real Estate Marketing sold last year were to people who intended to live in them as a primary residence.
In the Fraser Valley this year, townhouses account for 60 to 70 percent of the total market sales in Metro Vancouver as they are increasingly accepted as a more mainstream option. Low-rises account for 30 to 40 percent and high rises 5 to 15 percent. High rise sales have been stable but the low rise markets needs a clear product that is targeted to, and positioned, properly for boomers and millennials.
Scott shared his five trends that he sees happening in the market in 2016:
Trend #1: The emergence of the townhouse as the new ideal for single families
Trend #2: An expanding Chinese influence that is here to stay, especially in areas of South Surrey and Maple Ridge that are close to high schools with a higher rating.
Trend #3: Innovation from a product perspective: Examples: Polygon’s Mason and Green’s side by side garages, master on the main (appeals to aging buyers)
Trend #4: Buyers capitalizing on their realtor as a powerful third party sales channel
Trend #5: A shift in the balance of power in the buyer’s favor
For more information about what is happening in the Fraser Valley real estate market, don’t forget to check out our REIN Scores for the economic fundamentals that every investor in Chilliwack, Surrey, and Abbotsford should know (http://s.reincanada.com/www/store/detail/The-REIN-Score-BC).