I find as a REALTOR I’m often juggling multiple balls all at once.
So when I pulled up my chair and started to write my 2018 Market Forecast, I slowed right down, in part to think, but mostly because I’m a really slow typist.
This is not an easy article for a doomsayer like me to write.
I am a pretty skeptical person much of the time, especially when it comes to predicting Real Estate markets
I believe that no one has a crystal ball and that in the end the market will do what the market will do and probably not what we expect.
Instead I look at this more as a forecast than a prediction.
Fingers on the keyboard, gazing out my Lantzville home office window over the winter break, I think of all those people across Canada, freezing their butts off, many of whom Baby Boomers planning on retiring in the next few years.
I wondered how many of those freezing Boomers were gazing at their thermometers at that very moment — hoping to retire somewhere warmer, near the ocean … on Vancouver Island?
Meanwhile in Kitsilano in Vancouver, a hard working young couple sits in their tiny, rented apartment, and wonders how they will ever afford a place of their own?
I think of people in the lower mainland sitting on piles of equity in their homes — while battling traffic congestion every day.
And I think of overseas buyers looking at homes with astounding views in Nanaimo, at bargain prices, as compared to similar vistas in say West Vancouver priced at 3x even 4x as much.
And I come to a realization about the real estate market in Nanaimo — lots of people want to live in Nanaimo. And the more that do … the more that will.
And that makes me feel bullish about the Nanaimo real estate market as a whole and so my forecast for this coming year is more bullish than not. That being said, real estate is a long term play and things can change on a dime.
When an ever increasing number of people seek to live in an area we call that a positive market fundamental, and one that supersedes most others.
On the other hand I know there’s a lack of local high paying jobs making affordability a challenge here, even at current prices, never mind higher ones. Definitely a negative market fundamental.
Tightening of mortgage rules and rising interest rates – definitely negative fundamentals.
Market forces, like weather, are highly susceptible to what happens elsewhere as much as locally. And like weather forecasts, it is based on all things remaining the same as they are right now. Change a factor such as interest rates, a correction in Vancouver, something unforeseen, and the forecast changes.
So in a way predicting the next 12 months is a read on which market fundamentals will win out.
Some say BC follows a seven year market cycle. If that’s the case then we are entering into year 4 of a bull market cycle. If only it were that simple. The longer the current bull market cycle persists, that harder it will be to predict when it’s going to hit the top of the cycle.
Bullish Reason #1 > Population Growth + Lack of Housing = Bigger Lack of Housing
The British Columbia Real Estate Association expects sales to drop province wide in 2018 with prices rising. Sounds odd but it’s back to the lack of inventory due to the unrelenting demand to live in BC from across Canada and even overseas.
According to the Canadian Real Estate Association (CREA), an important factor in the growth of Vancouver Island’s economy. Between 2015 and 2016, the population growth rate increased from 1% to 1.3% for Vancouver Island as a whole and 2.2% in Nanaimo – the fastest growing municipality on the island.
Population growth on Vancouver Island continues to be driven by migration from other regions of Canada and to a lesser extent from other regions of BC. As expected, the majority of people moving to Vancouver Island settled in the southeast between Nanaimo and the Capital Region. However, population growth in most other areas was stronger than expected.
The population of Vancouver Island continues to age, suggesting that the majority of those moving to Vancouver Island are approaching retirement age or are retiring. However, it appears that after declining by approximately 1.5% between 2011 and 2015, the working age population has stabilized and is beginning to grow.
Bullish Reason #2 > Builders Playing Catch Up + Slow Approval Process = Greater Lack of Housing
The B.C. Real Estate Association’s chief economist just came out last week and said basically that unit sales will fall in BC by 10% while prices will continue to rise. I think this will be even more the case in Nanaimo where demand seems to be ever strong while inventory for sale ever weak.
He said demand continues to outpace supply in most markets from Vancouver Island to the Okanagan, which spurs rising prices, Cameron Muir said.
“We would need a combination of a pretty substantial decline in demand as well as significant increases in overall residential supply in order to get to the point in which prices would decline,” Muir said.
During the downturn in 2008 residential construction on the island ground to a halt with the Vancouver Island Real Estate market remaining essentially anemic for years, really until 2014 when you can see the start of the current cycle.
Gradually as demand picked up and chipped away at the housing inventory, owners started to realize that sure they could sell at a profit but then where could they go? A sentiment that continues to keep inventory levels historically low.
With all this demand relative to supply, residential construction is occurring at a fevered pace all over the island, especially between Nanaimo and the Capital Region. It is no secret to builders that if you build it it in Nanaimo or Victoria, it will sell. But the pace is simply too slow to keep up with demand.
Another contributing factor to the crucial lack of new housing is the incredibly slow, municipal and regional approval process. In Nanaimo a subdivision can take up to 2 years, or more, to be approved and can be disallowed at the very end of the process, scaring many off island developers away.
Bullish Reason #3 > The BC Economy is Growing = All Boats Rise and Fall With The Tide
Our housing market and our economy are becoming increasingly intertwined and most economists seem very bullish about the BC Economy which bodes well for Real Estate
Housing is driven by economic growth and all boats rise, and fall, with the tide. So goes the BC economy, so goes the housing market.
British Columbia’s economy continues to lead the country, with GDP in 2018 expected to hit 3.8 per cent. Government policy decisions, including slightly higher interest rates and the new mortgage stress test (Guideline B-20), could affect the housing market in 2018, but it is too early to say in what way.
Bullish Reason #4 > Baby Boomers Are Booming
Baby Boomers in Canada are sitting atop an unprecedented amount of home equity.
Attracted by reasonable prices, great weather, amazing scenery, and a warm community, Baby Boomers want to retire on Vancouver Island, and are coming here in droves.
The constant inflow of off-island cash is the lubricant that keeps this market humming and Baby Boomers are sitting on an historic cash windfall across the country in the form of home equity.
80 percent of Baby Boomers own homes. Two-thirds of Boomers have expressed a desire to “age in place.” Baby boomers planning to retire in the central island region come here to buy, most often detached single family housing, ranchers usually. Many of their peers that already own a home here, want to stay put, or downsize.
In other words there is far more desire to buy here than to sell, creating the perfect recipe for a tight sellers market with rising prices, intensifying the lack of local housing inventory and thereby the market.
Bullish Reason #5 > Investors Look To Cash Flow
There are investors from other major cities, with cash seeking a place to invest in that will cash flow. Where the rent coming in covers most of the expenses.
With some homes still available around the low $300K mark bringing in rents of $1600-$1800, and updown duplexes at $400K bringing in $2800, one can almost cash flow, especially with a bigger down payment.
As prices continue to rise, it will get even tougher but if investors feel there is still an upside to price growth, they’ll still buy.
My advice is to be careful to buy what you can afford to keep. If the market turns to the downside, selling that investment property may be harder that you think. Be prepared to hold.
Bullish Reason #6 > Lack of Infrastructure Keeping Prices Low + Passenger Ferry = Opportunity
Vancouver and Nanaimo are separated by about 50 kilometers of water bridged by a poorly planned and overpriced ferry connection that makes commuting to and fro unfeasible.
Vancouver is desperate for affordable housing with little to no reasonably priced land left.
In contrast, Nanaimo has very affordable housing (relative to Vancouver) and lots of cheap land, relatively speaking.
Island Ferries is a company planning to change that in a big way by summer 2018 by offering passenger only ferry service from Nanaimo downtown to the Vancouver Waterfront Station.
If this happens as I have said before I think we are looking at a game changer and I think reason alone to contemplate investing here.
With Seattle as a model where thousands commute in by ferry daily, of what can happen with properly designed and priced ferry operations, I see thousands of people eventually living in Nanaimo and commuting regularly by ferry to work in Vancouver.
It just makes sense.
Not So Bullish #1 > Lack of High Paying Jobs + Rising Prices = Diminishing Affordability
The unemployment rate in Nanaimo is about 4.8% and falling. A really good market fundamental.
The lack of high paying jobs in Nanaimo however gives me pause.
Go to any house party and you’ll likely meet someone who heads up north or to Alberta every other week for work. Or you’ll meet their spouse.
This is the routine reality for many.
As I wrote in a previous post, Nanaimo, Less Affordable than Toronto, many local buyers are already having affordability issues. To some degree the booming residential construction sector here will provide some of those jobs but overall the lack of real job growth here is a red flag.
Not So Bullish #2 > Interest Rates + Mortgage Rules = Downward pressure
At this time a 5 year mortgage is about 3.25% having risen through 2017.
Most bankers I’ve talked to see mortgage rates going up as much as a full point in 2018 and that the rate increase is likely to occur half way through the year.
By this time next year experts say a 5 year mortgage could be as high as 4.25%.
And under new mortgage rules that means buyers will need to qualify at 6.25% or 2 basis points above the contract rate.
These two factors, rising rates and lending rule changes combined together will put downward pressure on the market as a whole.
After taking into account all of these factors, I think the first half of 2018 is going to be much the same as the last 6 months as an overall lack of supply will keep prices up as demand remains strong.
As for the second half of 2018? That’s a hard call.
I think the spring market in Nanaimo is going to be very busy and that 2018 will be another busy year in Nanaimo Real Estate. I see more and more buyers coming with no real increase in inventory.
I think the market will become more balanced as demand dissipates somewhat due to higher rates and lending rules later in the year, stabilizing prices a bit as a result. Non-market factors such as; the proposed passenger ferry service between Nanaimo and Vancouver, could affect demand in an unprecedented positive way while any major downward trend in Vancouver could diminish demand here, but not necessarily.
But regardless what happens, Vancouver Island has great Real Estate fundamentals and over the long term Real Estate almost always makes money, while going up and down in the shorter term. That’s for sure.