We just wrapped up one of the most uncertain & unpredictable years in our lifetime…unless, of course, you were born before 1918! So, what comes next? Sheepish with your predictions? Not today’s guest. Chief Economist of the British Columbia Real Estate Association, Brendon Ogmundson, sits down with Adam & Matt to talk about the future of real estate in Vancouver in 2021 and beyond. Will Vancouver real estate prices decline in 2021? What are the key indicators to understand the Vancouver real estate market? And where are the big growth real estate markets in British Columbia? 2021 will favor the bold!
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Tell us about yourself.
I’m the Chief Economist at the BCREA and have been there since 2010. We publish forecasts and research papers about the housing market and economy of BC. I went to grad school at SFU and did some economic consulting after graduating in 2006. And then joined the BCREA in 2010.
Were you always interested in real estate?
I was in grad school during the 2008 financial crisis. If you were an economist in that time, you’re going to be pretty interested in housing. It was a stomach-churning time and those were formative years for me as an economist.
People always ask us this so we’ll put it to you: How’s the market?
We get that question a lot too. This year has been so unusual – “unprecedented” being the word of the year. We thought 2020 would be boring. After the pandemic, we predicted a huge downturn and big unemployment. But the market is doing shockingly well.
In April, we published a piece sketching out what we thought would happen through the pandemic. It wasn’t dire but we expected a drop in sales and coming back to pre-pandemic levels in about a year – typical for a recession. Instead, we had a negative supply shock. In a pandemic, people don’t want to show their homes. We also saw sales rebounded very sharply. Part of that is pent up demand. We didn’t have a spring season so that demand was pushed into summer and fall. We also saw overwhelming and quick acting policy responses. We had mortgage rates going down and a force thrown at the credit market so we didn’t have a repeat of the 2008 financial crisis.
We’re also seeing this pandemic affecting the labour market in a very unusual way. High wage jobs are up and lower wage jobs are still down. This recession hit lower wage jobs, like those in the service industry, much harder. Usually recessions hit all labour markets evenly and the service sector isn’t hit as hard. But this time, a lot of the jobs that support housing ownership weren’t affected. And those people can now take advantage of low mortgage rates.
How divergent was your April forecast from what the CMHC was predicting?
We predicted a shock to unemployment that would cause sales to fall, which would then affect prices. The CMHC first forecasted prices staying quite stable, which was based on our prices peaking in March. The biggest divergence between our forecast and the CMHC’s was the CMHC didn’t predict recovery until 2022. Nobody forecasted demand springing back like it has.
We looked at what would happen if supply went down and I don’t think the CMHC thought that hard about how a pandemic affects listings. By now, they’re about $150,000 off where prices are in the province. A lot of things in the CMHC forecast rubbed people in the industry the wrong way. I can see where they came from but it seems a lot of their predictions weren’t very well thought out.
Were there assumptions about how the economy would perform? Did that factor into CMHC’s report?
Many people didn’t assume the labour market would be affected so unevenly. If you didn’t think about the differences in wage tiers, you would miss the differences in demand and supply. In a pandemic, it’s difficult to forecast, so we cut the CMHC some slack. The bigger issue is that the CMHC stuck to that forecast and doubled down even when it was obvious things were going differently. So we start to wonder how much is model-driven and how much is philosophy.
Is it more difficult to come up with a forecast right now?
Yes. We’ve been chasing the numbers throughout 2020. 2020 has been a wild year for forecasters. Forecasting in a recession is always hard. And with a pandemic on top of that, it’s extraordinarily difficult.
What is the most resilient sub-market right now?
The pandemic is driving a real desire for single, detached homes all around the province. People want space and are willing to pay for it. So that’s driving overall prices up with the higher priced product. We’re seeing a drive for space in every market. Inventory for this type of home was already low, so there’s not a lot of product for everyone who wants it.
It felt like the detached market was starting to go on a run pre-pandemic. How much of this desire is normal market pressures and how much is due to covid?
That’s a good point. This market was due to get some strength back. The pandemic may have been rocket fuel for a trend that was already emerging.
On the condo side, in places like Vancouver, condos are the only game in town. It’s the only thing we’re building. There’s a lot of construction but it’s slow. We have supply coming on board but it’s uncertain when that will be. The strata insurance issues of 2020 also affected this marketplace.
Do you see these trends continuing for the next 3-5 years?
I think there will still be a push from people who desire space. But there’s a cap because there’s only so much supply and prices are already reaching a peak. Rates will be low for a long time which will make those prices slightly easier to digest.
Demographics and land constraints are unrelenting. We will have to fit a lot more people into a space that isn’t zoned very well. Where else will people go but condos? Eventually the condo market will return. We think the condo market dip is a short term one. That market will get back to normal once investors, immigration and short term rentals return.
What do you think 2021 will look like?
Vaccines will have a huge impact on confidence in the market and the economy. We will get back to normal faster than people expect. A rationality is returning to the global economy.
I think we’ll have a consumption boom in 2021. There’s $75 billion of extra savings sitting in banks in Canada. All that money will flood back into the economy.
Major projects will resume. Immigration will come back. All of these things will result in strong demand, more spending and a growing economy. We’re expecting over 100,000 sales in BC – the first time since 2016. The pandemic has also accelerated retirement plans; we’ll see strong migration to the island and the Okanagan. I think we’ll also have a strong year across the Lower Mainland. We’ve already seen growth in the Fraser Valley at the end of 2020.
People have a lot of money to spend and we’ll have low mortgage rates for at least the next year. There’s a lot of tailwind but not a lot of headwind for 2021.
Do you have a favourite region or product type you’re monitoring?
Over the next year, I think everywhere will do pretty well. I think Surrey is an incredible opportunity. Over the next decade, the growth of Surrey and its prominence will be a big story. There’s a trend of millennials aging into their home-buying years. Over the next 5-10 years, you’ll see this in the Lower Mainland. Where will those people go to buy? Some will have intergenerational wealth but most won’t. They may end up in condos, especially as they’re starting out. That’s where I think there will be more pressure, but more supply coming in as well.
On the other hand, we have retirees. Where are they going? That’s mostly Vancouver Island and the interior. Vancouver Island is at a 20 year low for inventory, meaning there will be intense price pressure. We’re seeing the same thing, but to a lesser extent, in the Okanagan. I also think we’ll have an economic boom across the north. And that’s another place that doesn’t have much supply.
We’ll have a lot of demographic pressure over the next five years but the issue will be supply. Where we’re not seeing a lot of supply and still seeing demographic demand is where we’ll see price growth.
What are your thoughts on downtown Vancouver?
I work downtown but I haven’t spent much time there in the last 8-10 months. I understand parts of it aren’t looking great. But most young people want to be in a city. So even if downtown is having some struggles now, people still want to be in cities. We will have millennial pressure for housing. Whatever struggles are happening downtown now are a short term story.
What indicators should people look for in early 2021 to analyze the market?
Check out our Nowcast. It shows you how the economy is growing by month. That data is usually released annually and on a delay. But this report shows you more real-time growth.
The most important thing for home prices is the sales to active listings ratio. That correlates strongly with price growth. As long as listings are low and there’s lots of demand, we’ll see rising prices.
If you look at prices in Vancouver over the last 10 years, you’ll see how resilient the market has been to shocks like downturns, taxes, and even this pandemic. Prices still keep going higher. This is an extraordinarily resilient market. Interest rates seem to be the only thing to put a dent in the market. As long as the interest rates stay low, we’ll have a strong housing market.
Where and what would you buy in 2021 if you had the borrowing ability of $2.5 million?
All of these choices are so personal. When we bought our house in Pitt Meadows, we wanted a basement, a gym, a yard, a place for a basketball hoop, etc. At the time it was easier to swing that in Pitt Meadows than anywhere else in Vancouver. So it depends what you need it for.
If you’re a small family that wants space, you’ll probably be looking outside the Lower Mainland. I’m a big proponent of buying what you need and not more. So if it were me, I’d buy the house I need and not borrow extra.
I’m not a real estate investor but I think if you’re looking long term, you need to look at the demographic drivers. For example in Surrey, look at where young people will be buying. Or look at land. Where can you get land and single detached homes where there aren’t many? And that might be on the island or in the Okanagan. I would focus on demographics and where people are migrating too, particularly if there isn’t a lot of supply.
Find out more at https://www.bcrea.bc.ca/what-we-do/economics/