Will Vancouver Real Estate Prices Go Down in 2022? With Brendon Ogmundson

*disclaimer: the information contained below and in the companion audio podcast are intended solely as legal information for personal use and should not be considered legal advice*

Getting to know Brendon Ogmundson

I’m the Chief Economist at the BC Real Estate Association. I do a lot of gathering, reporting and forecasting stats for the province. We try to really quantitatively answer questions. We also do a lot of speaking engagements.

How is the B.C. real estate market?

We’re not in the same place we were in the spring with that frenetic activity. Things have returned to normal levels on the sales side. The real issue is on the supply side; listings are below 10,000 for the Vancouver area. That’s usually a number we see in December/January, so it’s concerning we’re seeing that in August. So no surprise, we’re still seeing strong price growth. Condo prices are also catching up.

How do you explain the low supply of housing?

The pandemic is still a factor. When it comes to the housing supply, we did see strong new listings up until April and it’s been declining since then. It’s also a longer term structural problem thanks to demographics and zoning. We’re not getting completions of new stock.

The most common age in BC is 57. Then it’s 56, and then it’s 30. So we have people in their 50’s who are not looking to list and likely staying in their homes for the next decade or more. And then we have all these people in their 30’s who are wanting to buy homes. That causes a lot of friction. Vancouver is slightly younger but the same principle applies. A lot of listings are constrained by age.

There’s no way to incentivize people to list their homes outside of price. But even price hasn’t been that great an incentive during the pandemic.

Can you unpack the idea of expensive property and less turnover?

A lot of Vancouver is zoned for pretty expensive, single-family homes. $4 million homes don’t sell as often as $500,000 apartments. So that will constrain listings. If we had more townhomes and apartments, we’d see more turnover.

If 57 is the average age, will we be waiting a long time for those listings to come to market?

In the next 10 years, this is going to be a huge problem. It already is a problem, and it was exacerbated by the pandemic. A lot of people in their 50’s are not downsizing that much. Baby boomers are getting to their retirement age but they’re not downsizing. I think we’ll see more aging in place. People may even be buying second homes and vacation properties.

This will make it harder for people at the third most common age, 30, to find housing. That’s why we’re seeing more generational wealth transfers.

You can’t fight demographics. All you can do is react to them. And they’re screaming that we need to build more supply.

We tend to see people in that 50’s age group with significant assets be more in the “Not In My Backyard” (NIMBY) camp. And this isn’t a Vancouver issue. I’ve heard this from real estate professionals in Montana and every market across North America.

Simon Bray from REW shared that they’re seeing more young millennials/Gen Z-ers looking for real estate. Are you seeing that too?

We did see more first time home buyer activity than you would expect during the pandemic. With remote work, a lot of people were looking for homes in places like Chilliwack or Kamloops. People want a more affordable place to raise their family.

Is 57 the average age across the country?

I think BC tends to skew younger but I haven’t looked at all of the data. But it’s true that the millennial generation is ginormous and they’re aging into their first time home buying or move-up home buying stage. So this is a North America-wide issue.

Can we build our way out of this? This supply issue seems daunting.

It’s difficult. Over the last 10 years we’ve tried a lot of things to try and make housing affordable on the demand side. But we haven’t addressed the underlying issue of supply. We’re building a lot but we’re not completing very fast.

From 2015-2017, prices were through the roof and that’s often blamed on foreign investment. Our studies found that:

• BC had low listing growth,
• Low completions,
• A strong economy, and
• Low mortgage rates.

So it was a perfect storm of factors affecting pricing.

If we keep ignoring the supply side and things we do have control over, we’re going to make a lot of policy mistakes.

Currently, there’s a lot of demand for labour and construction. We just don’t have enough of that available. It’s hard to staff up in a short period of time.

Dr. Anne McAfee commented that we’re building in regions that aren’t amenity-rich. Are we building the product people want in the areas where people want to live? Will a new product solve the problem if it’s not in the right areas?

If you can work remotely and you’re a young family, maybe it’s more attractive to live in the valley or on the island. If we could build what people want and what developers want to build in Vancouver, it would be expensive, and it would still be really constrained. So developers move to where building is easier. And demand is based on affordability.

It will depend on what the post-pandemic work landscape looks like. It will be interesting to see if the demand sticks or if people have to come back into their office in the city.

Do you factor in the unknowns, like the nature of work and the climate crisis into your forecasting?

It gets really difficult. You want to keep things simple when you’re modelling and some things are hard to quantify. Like what do wildfires in the Okanagan do to demand? Buyers are second guessing how much they want to spend on a lakefront property if it’s going to be smokey all summer.

The future of remote work will really affect the level of demand in some of these smaller towns. The best you can do is make educated guesses but it’s hard to put that into these models.

What will it take for our supply to catch up after these last few months of low listings?

It’s going to take a long time. We’re really far away from balance. In Vancouver, we’d need to see active listings double – a healthy level of listings is 15,000-18,000 and we haven’t been there in a decade. We’re currently around 9,000. It’s even worse on the island or in the interior; so it’s a province-wide issue. We’re very far away from being in a balanced market, let alone a buyer’s market.

Are the inventory levels we have in Vancouver similar across the country?

In parts of Ontario it’s actually much worse. Prices are rising 30-40% in markets outside of the GTA (Greater Toronto Area). We’re seeing similar issues across Alberta and Quebec too.

Let’s talk about your latest forecast. What happens in BC this fall and into 2022?

We’re foreseeing sales moderate back to long-run levels. We’re on track for record sales this year because the first half of 2021 was so strong. On the pricing side, we have Vancouver prices up 2% and Fraser Valley up 6% next year. 2% doesn’t sound like a lot but we are factoring in rising mortgage rates and supply building up. We’ve had such a run-up the last year that we’re expecting things to balance out more in 2022.

Do you look at submarkets and inventory types?

We don’t look at submarkets a lot but we do look at product type province wide. The condo market in Victoria has really been picking up in the last few months. Rents in Vancouver have gone up 14% year over year. I don’t expect the single detached market to continue to see the types of price gains we’ve seen, but the demand will continue.

What impact did low mortgage rates have on affordability?

Even the impact of record low mortgage rates did fade after a couple of months because prices grew so much. There was about a four month window where affordability improved but then it started to erode as housing prices accelerated. Interest rates are having less of an effect than they once were.

What types of housing opportunities do you see buyers focusing on and investing in?

It really does come down to supply and demand. Prices will grow the most where there’s low supply and high demand. Looking at the millennial cohort, where are they going to go? Right now it’s in small markets like Chilliwack and the Fraser Valley, which are both up 20%. These are areas that are close enough to commute into the city but have that missing middle housing stock. So I see the most pressure in those markets just outside of Vancouver.

Traditional retirement spots, like Vancouver Island and the Okanagan, are seeing high pricing due to the high demand and low supply. The wildfire risk in the interior is a concern. I was bullish on the north for a long time as they have supply constraints and there’s a lot of economic activity, but it is quite far. You’d have to relocate your whole lifestyle. It’s a very under-supplied market but it can be volatile.

We often talk about downtown Vancouver. What are your thoughts on that area?

At the start of the pandemic, there were a lot of early obituaries about downtowns. But I didn’t buy into it. We have students coming back and we’re starting to see more pressure on rent. Downtown Vancouver is always going to be an attractive place to be, especially for young people. For investors, it’s a good idea. I would always be enthusiastic about downtown, especially in a major city like Vancouver.

What are some of the biggest risks facing the Vancouver and BC real estate markets going forward?

One of the big risks is worsening affordability because we don’t have enough housing for the amount of demand. That will always be a big risk for our market. I don’t see a risk of a harsh correction because we’re so far from that point. Even a pandemic, recession and double-digit unemployment didn’t do anything. So affordability is the major concern.

I am in the camp that believes the elevated inflation we’re seeing now is just temporary. But if it sticks around, that could do some big damage. It would raise interest rates, which would have a huge effect on the market. But I do think rates will be low for a long time.

What are your thoughts on the housing platforms in the upcoming election?

The Conservatives and the Liberals both have very similar plans when it comes to housing. They both want to ban foreign investment for two years. Currently, foreign involvement is 0.5-1.5% in BC, so it’s not a big deal. We’ve had basically none over the last two years and have still had record sales and pricing. But a lot of political parties take advantage of low-information voters.

The platforms are trying to help first time home buyers get into the market. The Liberals have a tax-free savings account and have promised changes to their incentive program. But all that stuff is at the margin. We have a lot of demand already.

And every party is making noise about incentives to increase supply which we welcome, but it’s a long term solution.

BC is a small open economy and so is Canada. We’re impacted by external factors more than who is running our government. Economically, there’s not a huge difference between the two parties.

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