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Current state of B.C.

s housing market
and key associated vulnerabilities

November 10, 2016


Ashley Kearns
This slide deck provides a brief overview of the following key trends in
the B.C. housing market for Fall 2016

Housing starts
MLS prices
Vacancy rates
Regulatory considerations
Housing market vulnerabilities

Generally, the outlook for the British Columbia (B.C.) housing market (starts
and sales) is projected to be moderate in 2017 and 2018, following a surge
in activity in 2016
The Vancouver region, already facing a massive decline in activity of resale
homes, is now facing a slowdown in new home construction
British Columbia, along with Quebec and Ontario, recorded the largest
housing start declines in Canada, and experienced an overall decrease,
attributable to lower construction intentions for non-residential buildings

B.C. housing starts are forecast


to be from 32,000-34,300
in 2017 and 29,700-32,000
in 2018
Starts were estimated at
37,700-39,300 in 2016
B.C. market has moderated since the first half of 2016
Existing home prices are expected to grow at a slower pace than in 2016
Forecasts and sales data indicate B.C. continues to be a sellers market
Drop in high-end Vancouver home sales following B.C. foreign buyers tax
were a factor in lower average prices
The Real Estate Board of Greater Vancouver estimated that home sales
dropped 38.8% (Y/Y) in
October sighting a
combination of changing
market conditions and
government regulations
Increases in home prices and population growth have pushed vacancy rates
lower, particularly in lower mainland, Vancouver Island, and surrounding
areas
B.C. has been one of the few provinces experiencing economic and migration
growth in 2016
Key changes to mortgage rules in 2016 are a part of a continued effort,
and a key source in recent trends, to cool the housing market and to
reduce government exposure

New foreign property transfer tax of 15% in B.C.


Preliminary August and September resale data suggested the "policy shock"
consolidated an already slowing trend
Stress test for new mortgages
Stress test now used when approving all new insured mortgages
CMHC analysis indicates 5-10% of prospective buyers could be affected in the first
year, while TD estimated 2-3% could be affected
New insurance restrictions for low-ratio mortgages
Amortization period 25 years, purchase price is less than $1 million, buyer credit
score of 600, property must be owner-occupied, GDS 39%, TDS 44%
Reduced government exposure to insured low LTV mortgages in target markets
Reporting of primary residence sale to CRA for capital gains exemption
Goal is to prevent foreign owners from falsely claiming a primary residence
Financial instability
Low interest rates continue to encourage borrowing and raise asset prices
Bank of Canada June 2016 FSR indicated high household indebtedness and
high loan to income ratios in B.C.
Vulnerable borrowers continue to be at risk for rising rates or economic
shock
CMHC forecasts that mortgages rates are expected to rise modesty in 2016-
2018
Economic instability and slowed growth outlooks continue to be an issue for B.C.
housing sector

Emerging markets continue to experience slower growth


Risk of lower commodity prices, weaker exports, and increased uncertainty
RBC Economics reported positive employment and consumer spending
General commodity market uncertainty and mixed messages
E.g., Softwood prices increased 11% since the start of the year, the lack of a
new agreement following the expiry of the one-year free trade grace period of
the old agreement has introduced volatility and uncertainty in the North
American forestry sector

E.g., Oil was recently priced above $50 per barrel, signalling optimism for
Canadas energy resource companies, but also the potential for a strengthened
dollar and revival in US shale production
Continued demand for housing in B.C., despite recent declines in extremely high valued
homes, is likely to continue

The conference Board of Canada forecast that B.C. will lead all other provinces in terms
of economic growth, but will be last in Western provinces for population growth

Bank of Canada June 2016 FSR indicated the divergence from national trends in past
years has been significant, and some reversion to the mean is possible

B.C. continues to be at risk for a correction, despite positive employment outlooks


Market fundamentals (job and population growth, high disposable income,
low interest rates) explain market prices in Victoria
Near but not over the overvaluation threshold
Overbuilding is also not on concern in Victoria CMA, with unsold inventories
down
There was moderate evidence of overheating in the Vancouver CMA housing
market during Q2 2016, notably in single detached homes
The market has recent begun to normalize around historical trends
There continued to be price acceleration through August 2016
Overvaluation continues to be a risk for Metro Vancouver CMA