Full Steam Ahead! – Metro Vancouver 2018 Home Price Forecasts
This post consolidates the many Metro Vancouver residential real estate forecasts into a single view and shows how respected forecasters can dramatically misread the market.
Don’t get distracted by a single real estate prediction. Most journalists are just sharing real estate price information provided to them in a press release rather than providing insights or presenting the information in a broader context.
Many industry players issue annual real estate price forecasts, but because they are predicting different outcomes some of them must prove to be incorrect. True value comes from seeing the range of forecasts and understanding the factors driving them.
At the end of this article you will understand:
1. 2018 Metro Vancouver home price forecasts
2. The level of accuracy and reliability of the forecasts
3. How to use this information to your advantage
1. Metro Forecasts for 2018
Different forecasters have different approaches. Some will only provide a provincial forecast, some a city one, while others forecast by type of dwelling within a city. The chart below depicts 6 forecasts to provide a broad picture of the market. These forecasts don’t differentiate between detached homes and apartments.
The most optimistic forecast calls for 6% price growth while the most conservative expects no price appreciation at all. Regardless, the average forecast is for prices to increase by over 3.5%. To put these forecasts in perspective, Vancouver home prices rose 0.7% across dwelling types in 2017. Expectations are 2018 price growth will outperform 2017 because the drivers of price growth are stronger than the headwinds.
Next, we have two forecasts of price by dwelling type from Central 1 and the BC Real Estate Association.
Martin Delafontaine, a veteran commercial real estate broker with Lee & Associates, believes that the forecasts for detached homes are overly optimistic. There will be opportunities if the land becomes eligible for redevelopment into higher density condos and townhomes (e.g., property near the new and planned Skytrain and other transit stations). Given the experience of 2017 and the considerable government efforts to cool the market, likely detached home land values will remain flat for 2018.
According to Martin, condos still have considerable room to rise due to a shortage of housing and limited rental supply. Today a condo in Vancouver costs between $800 to over $2,500 per square foot. Developers initiating future projects will need to sell at even higher prices due to high land prices and rapidly rising construction costs. All levels of government are trying to temper demand but there are many other factors, like rising construction costs, driving higher prices.
High-level forecasts are not helpful when detached home and condo prices are rising at very different paces. The consensus seems to be that 2018 will see more price gains than 2017, and that detached house prices will stay relatively flat while condo prices continue to climb.
2. Forecast Accuracy
BCREA and Royal LePage 2017 price predictions were off by a wide margin. But their forecasts weren’t entirely wrong. Although prices of all homes rose 0.7%, detached home prices dropped 3%. It was an unexpected whopping 17% increase in condo re-sale values that turned things around. A key factor influencing the 2017 forecasts was the implementation of the B.C. foreign home buyer tax which was expected to push prices down, but didn’t.
Like weather forecasts, real estate forecasts need to be taken with a grain of salt.
3. What should I do?
Forecasts are intelligent guesses and when making investment decisions we often focus on the most likely outcome. Prudent investors also consider for the worst-case and best-case scenario.
To benefit from the best-case scenario, a home buyer should talk to their mortgage broker about prioritizing flexible loan conditions. These allow you to get approved for more money, move quickly to close, and have lower fees, rather than focusing solely on rates. Every lender has very different lending rules and most people underestimate how these impact:
1. How much you can borrow.
2. How easy it will be to meet all their conditions by the closing date.
3. How quickly you can pay off your debt.
4. The penalties and fees charged to pay-off the mortgage or move it to another lender.
To mitigate the risk of a worst-case scenario, try to buy a home at a price that allows financial breathing room and plan to live in it for 5 to 10 years.
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Author
Contributor
Martin Delafontaine
Senior Vice President, Investment Properties
Lee & Associates Vancouver
Sources:
RE/MAX Housing Market Outlook 2018
Royal LePage 2018 Market Survey Forecast
RBC Home Resale and Price Forecast (October 2017)
TD Canadian Regional Housing Outlook (August 2017)
CMHC Housing Market Outlook (Fall 2017)
CREA Quarterly Forecasts (December 2017)
