Multiple Listing Service (MLS®) residential sales in the province are forecast to fall 9 per cent to 71,400 units this year, after recording 78,346 residential sales in 2018. MLS® residential sales are forecast to increase 14 per cent to 81,700 units in 2020. The 10-year average for MLS® residential sales in the province is 84,800 units. The shock to affordability from restrictive mortgage policies, especially the B20 stress test, will continue to limit housing demand in the province this year. However, a relatively strong economy and favourable demographics are likely creating pent-up demand in the housing market.
Despite the policy-led slowdown in housing demand, the BC economy continues to be highly supportive of housing demand. After treading water in 2018, BC employment growth is expected to double to 2.2 per cent this year. In addition, the unemployment rate is forecast to continue its downward trajectory, falling to just 4.3 per cent in 2020, its lowest level in over a decade. Against this backdrop, population growth fueled by immigration, as well as the millenial generation entering their household-forming years, provides a solid underpinning to housing demand.
The inventory of homes for sale has climbed out of a cyclical low, leading to balanced market conditions in many areas and buyer’s market conditions in some communities and across some product types. This shift in market conditions has enabled many potential home buyers to be sole bidders of the properties of their choice.
Current market conditions are expected to provide little upward pressure on home prices this year, with the average annual residential price forecast to remain essentially unchanged, albeit down 2 per cent to $697,000. Modest improvement in consumer demand is expected to unfold through 2020, with unit sales climbing 15 per cent and the average residential price increasing 4 per cent to $726,000.
Economic growth in BC looks to have slowed by more than expected in 2018, expanding at about 2.5 per cent rather than the 2.8 per cent we had forecast. Rising Canadian interest rates and the deeper-thananticipated impact of the B20 mortgage stress test on home sales slowed the housing market and prompted a dramatic pull-back in consumer spending. Growth was helped by continued strength in both residential and non-residential construction spending, while global trade uncertainty constrained export growth.
Going forward, we expect slower growth to continue in 2019 as overly-restrictive mortgage regulations dampen home sales and new home construction slows. However, the provincial economy should get a boost as construction of the LNG Canada project gets underway. We are forecasting that the BC economy will grow just 2.2 per cent in 2019 followed by an uptick in 2020 to 2.8 per cent.
Consumption spending by BC households slowed substantially in 2018, growing at an estimated 2.3 per cent, the slowest rate of growth since the 2009 recession. The consumption slowdown was primarily the result of a collapse in retail sales growth. On the heels of a near record-setting 2017, total retail spending in the province posted a meagre 2 per cent growth in 2018.
There were two primary factors in BC’s disappointing retail sales growth. Employment growth was stagnant through the first half of the year, and rising interest rates and a policy-induced slowing of the housing market created a drag on household spending. Interest rate sensitive purchases like new cars or renovation spending and purchases linked to home sales like appliances and home furnishings were a major drag on overall retail sales last year.
On a positive note, employment growth has accelerated since mid-2018. Total employment in the province has expanded at an annual rate of over 2 per cent since September 2018, with most job growth coming in the form of full-time employment. That job growth has kept the BC unemployment rate under 5 per cent for the past seven months, which should put upward pressure on wages as firms bid for increasingly scarce labour. As the labour market improves, growth in household spending should bounce back to a level consistent with its long-run average.
Softening domestic demand in 2018 was compounded by an unpredictable global trade environment. Exports of BC goods have been sliding lower since the summer of 2018, driven by a tariff-induced slowdown in the shipment of forestry products to the United States. The preference for tariffs and trade wars as a negotiating tactic on the part of our largest trading partner continues to be a major source of risk for the BC economy, and indeed for the global economy. Global economic growth is forecast to weaken in 2019, largely because of a trade dispute between BC’s two largest trading partners, the United States and China.
Provided by: BCREA