Welcome to the Knew Realty Research Inc. Economic and Real Estate Market Outlook for the Province of British Columbia (BC): Fall 2018
“We are so happy to be able to provide our blog readers and e-mail subscribers with our own insights on what factors will interact to shape economic and real estate trends across the province of BC in the coming years. We thank everyone who takes the time to consider our arguments and expectations.”
Sam Richards, Director and Partner at Knew Realty Research Inc.
To Download the Presentation CLICK HERE
The news cycle on BC’s rapid housing market came to an end in 2018 as residential sales and construction activity counts continued to register significantly lower than in most recent years.
Looking ahead, BC’s real estate story will be one of strong economic fundamentals pinned against government regulations designed to keep the market from performing like it did from 2015 to 2017.
In the end, BC’s economic positives should be enough to ensure existing and new residential market activities live moderately ever after through 2019 and 2020.
BC Consumer Confidence
Off the back of a great year for North American economic performance, consumer confidence levels across BC are currently strong, with households feeling financially secure and optimistic about their futures. By contrast, BC residents are wearier about investing in real estate than they were 12 months ago.
You can’t blame them, 2018 saw the introduction of new Federal regulations designed to restrict mortgage lending, and Provincial government taxes that were admittedly designed to lower housing prices. Moreover, interest and mortgage rates are currently poised to creep steadily higher over the next couple years, and most people understand that when the costs of mortgages rise, the demands for mortgages fall.
Existing Home Sales and Residential Construction
The years 2015, 2016, and 2017 saw some of the hottest seller market conditions ever recorded in BC real estate history. After a party that long, the hangover could be bad. But looking ahead, an otherwise strong BC economy should ensure historically moderate levels of existing (MLS) home sales province wide in 2019 and 2020.
Construction of new residential units will also retreat towards historically moderate levels over the next two years as well; though compositionally non-market / affordable housing unit construction will play a far greater role in 2019 and 2020 than it has possibly ever played before.
There’s $billions of reasons to get excited about the outlook for BC’s non-residential investment market. And why not?
The province has just begun to “light up” all the eventual major investments that will come to support the new marijuana industry; research facilities, raw material production facilities, final production and packaging facilities, supply-chain management systems, competitive retail spaces, etc.
Amidst this impending surge of investment, capital expenditures in the province recently sustained in 2018 after growing a remarkable +20% in 2017. Namely, this continued amount of investment was driven by the reinvestment of strong manufacturing and retail earnings in both years.
Conversely, smaller business sentiment in BC has shown some weariness as of late, but this is most likely due to impending factors that will affect small businesses harder than larger enterprises – factors such as an increase in the minimum wage, and the burden of Medical Service Payments becoming an employer tax, to name just two.
Also, it has become increasingly harder for smaller business to fill their job vacancies throughout the year amidst tightening labour market conditions across BC.
Labour Markets and Population
Overall, BC’s average “household economy” will enjoy real gains in their purchasing powers (income growth that outpaces inflation) over the 2019 to 2020 horizon, encouraged by continued tightness in provincial labour markets amidst respectable levels of overall economic growth.
All of the above will however have a lesser effect on drawing migration to BC from other provinces when moving ahead, as the general economic outlook across Canada (especially Western Canada) is more balanced with BC today than it has been in recent years; BC being a far stronger economic engine previously.
Overall, the forthcoming economic positives should be sufficient enough to ensure MARGINAL property value gains for the province of BC as a whole in 2019 and 2020 in spite of internal real estate market conditions that will be shaped by lower levels of demands by comparison to recent years.
That being said, this province wide outlook for housing prices is fragile as the growth outlook is marginal. There will be much more regional variations of strengths and weakness in terms of maintaining or growing property values during this time by comparison to the 2015 to 2018 period.
Moreso now than then, investors in the BC real estate market will need to pay attention to their own local trends when making important decisions.
Regional Residential Real Estate Trends
The Okanagan-Mainline Real Estate Board’s (OMREB) trading area has steadily represented about 1 out of every 10 existing home transactions across the province of BC in 2018. The Board could see this market share increase over the next couple years as its pull-back in sales year-to-date in 2018 has not been as deep as most other BC regional Real Estate Boards.
By contrast, new construction of new residential units in the OMREB trading area has seen greater declines in 2018 by comparison to most other BC regional Real Estate Boards, and so this Board will be working to maintain its current share of BC’s new residential construction investments in the years ahead.
Regional Economic Trends
The overall general economic conditions that play back drop to housing activity across the entire Okanagan-Mainline Real Estate Board’s (OMREB) trading area have been mixed in 2018.
For instance, compared to other economic regions, the collective region of the South-Okanagan, Okanagan-Mainline and Kamloops Real Estate Board trading areas was a leader in non-residential investment growth. By contrast, the same comparison shows poorer labour market trends and conditions.
That being said, the Central-Okanagan sub-area of the OMREB trading area was a provincial leader in both job creation and population growth in 2018, while experiencing far greater than normal gains in average industrial incomes.
Entry level incomes within the Central-Okanagan are however far lower than the provincial average which has been the case historically – perhaps you’ve heard the term ‘Sunshine Tax” when discussing the Central Okanagan.
Regional Existing and New Home Sale Price Trends
Looking ahead, those on the supply side of the Okanagan-Mainline Real Estate Baord’s existing home and new home markets will work to maintain annual spending appreciations earned in 2018 year-to-date, which have been a respectable +8% for the average single family home purchased, and +3% and +11% for the average townhome and condo, respectively.