Market Update: May 2022

It’s no secret that Metro Vancouver’s housing market—heck, housing markets across Canada…and the United States…and almost everywhere—have been on an upward trajectory over the past couple of years. This realized destiny was anything but guaranteed when the pandemic began in early-2020, with Canada’s housing authority (the Canada Mortgage and Housing Corporation, or CMHC) actually predicting a 9-18% average home price decline through the balance of 2020 and into early 2021.

Welp, that certainly didn’t happen, now did it?

Turns out, generous fiscal supports, historically-cheap money, an inability of people to spend on some of the things they normally did (like holidays), and a pandemic driven narrowing in on what we most desire in and from our homes—as places to not only live, but to work and play, too—have driven up demand and decimated supply. Prices are up across the board.

An interesting and unanticipated artifact of these historically-unique housing market dynamics is that the price differential between home types has risen to astronomical levels. For example, the most recent gap between the benchmark condo price and its townhome equivalent, at more than $169,200, is seven times what it was before the pandemic began. Similarly, the almost-$920,000 difference between benchmark townhome and detached home prices dwarfs the $700,000 gap during the 2016 market peak, and is more than $300,000 higher than pre-pandemic times.

Needless to say, this is problematic, as it is arguably more difficult than ever for households to move “up market”, short of receiving a windfall from lottery winnings or the Bank of Mom & Dad. While the opportunities for downsizing abound, we expect these unsustainably-high gaps to close somewhat in 2022 as a result of natural market forces, making it a little bit easier for some households to make their next move.

With housing prices at all-time highs—and increasing faster than at almost any other time in our history—as supply struggles to be framed as anything but constrained, it’s natural to be concerned not only about peoples’ ability to move within the market, but perhaps more so the ability of first-time home buyers to actually buy a home for the first time. But what does the data tell us?

This may come as a surprise to some, but the number of first-time home buyers in Metro Vancouver has actually increased every year since the BC Ministry of Finance began publishing such data. Specifically, the 4,343 first-time home buyers in 2018 rose to 4,644 in 2019, to 5,114 in 2020, and further to 5,602 in 2021. This is pretty compelling evidence that despite rising prices and limited supply, first-time home buyers are finding ways to continue to get in on the action.

Of course, storylines are rarely so simple. When considered as a share of all transactions in Metro Vancouver, first-time home buyers in 2021 accounted for 6.8% of purchases, down from 8.8% in 2020, and 9.6% in 2019. So in some ways, you can latch on to the narrative that suits your needs best: that first-time home-buying activity is waning per its share of all sales, or that first-time homebuying activity is on the rise per the count of first-time home purchases.

The reality is that we need more data to fully understand the real dynamic at play here. With this in mind you can bet I’ll be following the data through 2022 to see if that declining first-time home buyer share actually translates to waning first-time home buyer counts, as we saw in the latter half of 2021.

Include me in the group of market-watchers and commentators who, at the time, thought the rise in Metro Vancouver’s purpose-built rental market vacancy rate in 2020 was a blip on the radar. Remember, after hovering between 1-2% for years leading up to the pandemic, the region’s vacancy rate rose from 1.1% in 2019 to 2.6% in 2020— a more-than-doubling! I actually wrote a Weekly Observation last year evaluating some of the potential reasons behind this, identifying record new supply and a pandemic that negatively impacted the precise demographic that demands rental housing (primarily younger people, including students and workers in hospitality) as the primary culprits. Not surprisingly, then, I watched as Metro Vancouver’s rental vacancy rate snapped back to 1.2% near the end of 2021 as international students returned and our economy more fully reopened.

With relatively strong demographic and economic tailwinds expected to influence this market over the coming few years (at least), the opportunity for investors to buy low, and for renters to enjoy some rent relief, may have passed us by.

Across Canada, purpose-built rental markets have been the recipients of inadequate attention—at least insofar as new supply is concerned. Here in Metro Vancouver, the stock of purpose-built rental homes has in fact dwindled by 1% since 1991 as the population has expanded by 68%, resulting in one per-capita measure of rental housing prevalence—the number of rental homes per 1,000 residents—declining from 72 to 42 (a 41% drop) over that period.

Has the tide turned in recent years? Data on rental housing completions suggest this might be the case, with the region adding an average of 5,400 purpose-built rental homes annually over the past five years, versus an average of just over 1,300 annually over the prior 25 years. For the sake of a balanced rental market and affordable rents, let’s hope this continues.