Exclusive from the Fraser Valley Real Estate Board for Realtors to share with our clients,
offering in-depth analysis of the Fraser Valley market post-2020 – from one of BC’s foremost economists and our industry’s main resource for housing market intelligence, Brendon Ogmundson.
This issue, it’s a look ahead. Will the pandemic continue to impact the market? What else is in store for Fraser Valley REALTORS® and their clients?
FVREB Communications in conversation with Brendon Ogmundson, BCREA Chief Economist:
Q: In part one, , we finished on the topic of the condos and how the pandemic had relatively little impact on that market segment in 2020, in comparison to family-sized homes.
Multiple condo construction projects are currently underway in White Rock and Surrey Central; as well there are row home developments all over Fraser Valley – how will these affect the market in 2021?
A: Fraser Valley is one of the epicenters of population growth in the entire province. Surrey in particular, will need to continue expanding its supply of housing over the next decade. By 2030, Surrey is expected to see its population of individuals aged 25 to 39 years, prime household-forming years, expand by more than 30 per cent. And its strata properties that are most often the first step into home-ownership.
Without sufficient supply in the coming years, demand pressures from strong demographic fundamentals could create the same type of affordability challenges experienced by the rest of Metro Vancouver over the past decade. So, to answer your question, the economic fundamentals show that the supply will be needed.
“One of the casualties of the pandemic…”
Q: The lack of supply and strong demand over the last six months has put upward pressure on prices. What will this mean for first-time buyers in 2021 and those finding it challenging to get financing?
A: One of the many unusual hallmarks of the COVID-19 recession is that it was accompanied by a decline in the supply of active listings, exactly the opposite of what we would expect to see given rising unemployment. The impact of social distancing, combined with a remarkably fast and massive rollout of stimulus money directly to households, helped to cushion the sizable blow of historically large job losses, bridging financially vulnerable households through the initial phase of the recession. As a result, the swift turnaround in home sales through the summer was met by an under-supplied market, resulting in very tight market conditions in the fall and winter.
Tight markets bring high prices as competition for available housing supply ramps up, resulting in multiple offers. The market that largely saw the most competition was for single-family detached, a market segment that is largely driven by move-up buyers, high income earners or those with a large amount of equity for whom the added hurdle of the B20 stress test qualification is not a concern.
Remember, although mortgage rates are at all-time lows, uninsured borrowers must qualify at the higher of the average market rate plus 200 basis points and the 5-year posted mortgage rate, which sits at 4.79 per cent. Insured mortgages must qualify at the posted 5-year mortgage rate.
One of the casualties of the pandemic was the indefinite shelving of a planned change to mortgage qualification for both insured and uninsured borrowers that was set to occur in April of 2020. That change would have seen the qualification rate for insured and uninsured mortgages harmonized to the average market rate, currently 1.8 per cent plus 200 basis points, or 3.8 per cent.
Potential first-time homebuyers, largely younger and earlier in their careers, were more impacted by the recession and less able to take advantage of low mortgage rates due to a high qualifying rate. We hope that once the pandemic is behind us, policymakers will revisit their decision and make the changes to mortgage qualifications as planned.
Brendon Ogmundson’s predictions for the 2021 market in the Fraser Valley
Q: How long do you anticipate this unexpected and unseasonal demand will last?
A: Whether these pandemic-induced trends last beyond 2021 is difficult to say. Given the record-setting December 2020, the market is likely to get off to a very strong start to 2021 before vaccinations ramp up and we finally start to put COVID-19 in the rear-view mirror.
That should mean higher than average sales through the spring and summer, but as consumers gain more confidence with our society returning to more ‘normalcy’ and decide to list more homes, I anticipate more seasonally normal market cycles toward the end of the year. This will help to balance out the market.
However, if COVID-19 has left a more permanent scar on the psyche of homebuyers, and the work from home trends endure, we may continue to see elevated demand for single-family detached homes. And that demand will swiftly run up against a very under-supplied market, creating even further upward pressure on prices.
Q: What do you forecast for both sales and prices for Fraser Valley in 2021?
A: After an unprecedented and often surprising performance in 2020, the Fraser Valley housing market is set-up for a very strong year this year.
As the BC economy emerges from recession and immunizations progress, we anticipate that the mass of savings accumulated over the past year will spark a flood of pent-up consumption spending. That spending, along with the resumption of major capital projects, improving global trade, and normalized immigration will propel BC economic growth to its best showing in years and provide a boost to an injured but recovering BC labour market.
Strong underlying demand will be further boosted by Canadian mortgage rates that were driven to a new record low and are likely to remain at a very low level over the next two years.
Those factors all combined signal a very strong year for home sales, with total MLS® sales in the FVREB area projecting to reach about 21,000 in 2021.
On the supply side, new listings activity recovered through the second half of 2020, but not nearly enough to see any accumulation in overall inventory. Given continued momentum for sales, that means prices will be under pressure next year with the potential for double digit increases in the MLS® HPI benchmark price.
Q: Already, there are some experts predicting a post-pandemic ‘crash’ at the end of next year, what are your thoughts on that?
A: There is never a shortage of dire predictions for the Canadian housing market. However, if we step back and look at recent history in BC, what is revealed is an extraordinarily resilient housing market. One that has, in the past 15 years thrived despite a global financial crisis, several rounds of tightening mortgage regulations, a litany of new housing demand focused taxes, and now a global pandemic which prompted perhaps the deepest recession in Canadian history.
Given a recovering economy, strong demographic fundamentals and population growth, and persistent low mortgage rates, I see no reason to put any stock in the latest round of housing crash prognostications.
