the rennie outlook 2021

rennie outlook 2021

RENNIE OUTLOOK 2021

With 2020 now in our collective rear view mirror (phew!), we are excited to share this 2021 edition of the rennie outlook—a report that presents our predictions for a selection of housing, demographic, and economic indicators in Metro Vancouver, British Columbia, and Canada. Our outlook is based on the latest available data. In this edition of the rennie outlook we address the questions many of you have been asking: will the resale and pre-sale markets continue to ride the momentum created in the second half of 2020? Will our population resume its growth trajectory after migration flows buckled due to border closings and travel restrictions? And can we expect to continue to add jobs and drive the unemployment rate back down to where it was before the pandemic? While we all hope that 2021 has fewer surprises in store for us than did 2020, the future remains inherently uncertain and, noting this, we are certain that some of our predictions will ultimately miss the mark. As such, we place an equal emphasis on the context and logic used to develop the predictions as we do the predictions themselves. For each element considered in this 2021 outlook, the direction of our prediction is indicated by either an increase over recent trends (an “up” arrow), a decrease (“down” arrow), or a similar level (a “side-to-side” arrow).

table of contents .

2 INTRO

3 HOUSING

5 POPULATION

7 JOBS, INFLATION & INTEREST RATES

All the best in 2021, and stay safe.

Ryan Berlin Senior Economist & Director of Intelligence rberlin@rennie.com

Andrew Ramlo Vice President, Consulting aramlo@rennie.com

Copyright © 2021 rennie group of companies. All rights reserved. This material may not be reproduced or distributed, in whole or in part, without the prior written permission of the rennie group of companies. Current as of January 18, 2021. All data from Real Estate Board of Greater Vancouver and Fraser Valley & Rennie. While the information and data contained herein has been obtained from sources deemed reliable, accuracy cannot be guaranteed. rennie group of companies does not assume responsibility or liability for any inaccuracies. The recipient of the information should take steps as the recipient may deem necessary to verify the information prior to placing any reliance upon the information. The information contained within this report should not be used as an opinion of value, such opinions should and can be obtained from a rennie and associates advisor. All information is subject to change and any property may be withdrawn from the market at any time without notice or obligation to the recipient from rennie group of companies. E.&O.E. 2

RENNIE OUTLOOK 2021

housing: calmer waters in 2021 after a turbulent 2020

RESALES

Following a robust conclusion to 2019, we had expected that the housing market in the Vancouver Region would build on that established momentum; with that in mind, we predicted that MLS sales would approach 50,000 in 2020. We believed this would be predicated on a continued tight labour market, steadily rising job counts and wages, and strong population growth. Ultimately, and serendipitously, the region did achieve 49,900 sales in 2020—though the path taken to reach this year-end total was anything but predictable, thanks to the pandemic. As we flip the calendar from 2020 to 2021 on the heels of 5 months of record, or near-record, monthly sales counts in the region, a strong foundation has been laid for more consistent market activity in the year ahead.

OUR 2021 OUTLOOK Increased population and employment growth (market tailwinds), offset by slightly elevated interest rates and the exhaustion of 2020’s remaining pent-up housing demand (headwinds), will see the Vancouver Region tally 50,000 MLS sales in 2021—4% more than the past-decade average. This would comprise the sale of 20,000 houses, 11,000 townhomes, and 19,000 condos.

RESALES

PRE-SALES

The pre-sale market in Metro Vancouver proved to be resilient in the face of uncertain economic circumstances in 2020. Before and after a sluggish Q2—due to the introduction of strict social distancing rules—the regional pre-sale market performed well from a sales perspective. Strong levels of activity towards the end of Q2 and through the second half of the year reflected the agility of both buyers and developers as they navigated augmented pre-sale processes. Overall, the region tallied slightly more than 11,000 pre-sales in 2020. While this was 18% lower than the past-decade average (of 13,500 pre-sales), it was 44% more than the 7,722 pre-sales in 2019.

OUR 2021 OUTLOOK Following a surprisingly positive pre-sale market performance in 2020 that flew under the radar of many, buyers are expected to purchase between 13,500- 15,000 pre-sale homes in Metro Vancouver in 2021. This would comprise a minimum of 7,500 concrete homes and 6,000 woodframe homes/townhomes.

PRE-SALES

RENNIE OUTLOOK 2021

HOUSING STARTS

The recent slowdown in new construction activity throughout the region was encapsulated in Metro Vancouver’s 22,400 gross housing starts in 2020, a figure that was 21% below 2019’s 28,100 starts.

Having noted this, some additional context for the year-over-year slowdown in starts is warranted. First, 2020’s starts tally had a lot to live up to when being compared to 2019’s activity level, as 2019 represented an all-time high. Second, the region has started an average of 21,700 homes annually over the past decade; compared to this, 2019 starts were actually 3% higher. With a view to projecting the number of starts in 2021, it is useful to acknowledge that there were an estimated 22,500 building permits issued in 2020, which was down 11% from the average of 2018 and 2019 (of 25,100 permits issued).

OUR 2021 OUTLOOK Housing starts in 2021 will retreat from both the historic high of 2019 and the Covid-impacted count of 2020, as the number of building permits issued in 2020 was lower than in previous years. In total, we expect 21,000 gross housing starts in Metro Vancouver in 2021—on par with the past-decade average.

STARTS

HOUSING COMPLETIONS

In 2020, Metro Vancouver registered its second-most (gross) housing completions in any year since 1990, at 24,000. This was driven by an all-time high in apartment completions (at 17,100), while ground oriented completions slipped to their lowest level since 2012 (just under 7,000).

OUR 2021 OUTLOOK In the wake of the record housing starts in 2019, and despite construction activity being interrupted in 2020 by the pandemic, Metro Vancouver is expected to complete a similar number of homes in 2021 as in 2020, at almost 24,100.

COMPLETIONS

RENNIE OUTLOOK 2021

demographics: a migration reflation

TOTAL POPULATION

International travel restrictions blunted population growth across Canada in 2020, including here in British Columbia. Indeed, after adding an average of 68,000 people annually over the past 10 years through natural increase and migration—with growth averaging 1.4% per year—this province added an estimated 46,500 people in 2020 (for 0.9% growth). As the borders open back up later in 2021, and trend levels of births and deaths are re-established, population growth will return to—and exceed—pre-Covid rates in the coming years.

OUR 2021 OUTLOOK British Columbia will add up to 75,000 people in 2021, a 57% increase over 2020’s growth. Metro Vancouver will add almost 45,000 people, up 74% from 2020 and the most growth since 2014.

POPULATION GROWTH

IMMIGRATION

For Canada and many of its provinces, immigration is the single-largest driver of population growth. No wonder, then, that population growth downshifted in 2020 as immigration at the national level slowed to a virtual trickle: the (estimated) 195,000 immigrants welcomed to Canada last year was 44% below 2019’s 341,000, and a similar margin lower than the original 2020 target of 351,000. It was also the fewest immigrants to Canada in any year since 1998. In response to the immigration—and, in turn, the labour force—deficit created by the pandemic, the federal government upped Canada’s immigration targets for the coming three years: to 401,000 for 2021, 411,000 for 2022, and further to 421,000 in 2023. Should these targets be reached, they will have significant implications for provincial and metropolitan regional populations, creating a boon for labour supply as economic activity returns to trend within the coming two years.

OUR 2021 OUTLOOK Population growth in BC in 2021 will be driven by immigration, with the province welcoming more than 67,000 immigrants. Of these, 54,000 will land in Metro Vancouver (more than doubling 2020’s regional immigration flow).

IMMIGRATION

RENNIE OUTLOOK 2021

DOMESTIC MIGRATION

Compared to the disruption to BC’s and Metro Vancouver’s international migration flows that Covid-19 brought in 2020, domestic migration was somewhat more resilient. This likely reflected, to varying degrees, the limited scope and enforceability of inter- and intra-provincial travel restrictions, a relatively effective response to the pandemic here in British Columbia, and a labour market that is outperforming most other provinces and the country’s largest metro areas. Domestic migration to BC was particularly strong in Q2 2020, despite the onset of the pandemic. During this period, British Columbia added almost 8,000 people from other parts of Canada, while Alberta, Saskatchewan, Manitoba, and Ontario combined to lose almost 9,000 people.

OUR 2021 OUTLOOK With a relatively favourable experience managing both the spread of Covid-19 and the ongoing functioning of the economy (compared to other provinces), BC will add up to 20,000 people through net domestic migration in 2021. Metro Vancouver can expect to lose up to 10,000 residents through domestic migration—all to other parts of BC.

DOMESTIC MIGRATION

RENNIE OUTLOOK 2021

jobs, inflation, & interest rates: getting back on track

JOBS

During the spring of 2020, employment across the country (and indeed around the world) suffered its largest decline since the Great Depression. Here in Metro Vancouver this was certainly true, with 264,000 jobs shed between February and May (a span of 3 months). To put the magnitude and speed of this downturn into context, employment in Metro Vancouver during what had previously been considered the economic downturn of a generation—the Great Recession of 2008/9—fell by 39,000 jobs over the course of 14 months.

Importantly, employment has significantly recovered since May 2020, and is now at 97% of its pre-Covid level.

OUR 2021 OUTLOOK Metro Vancouver’s job base will expand by between 3-4% in 2021, following an overall decline of almost 3% in 2020 (which reflected an 18% decline between and January and May and an 18% rebound between May and December).

JOBS

UNEMPLOYMENT

Metro Vancouver’s labour market was, arguably, functioning better than any in Canada before the pandemic set in, with an unemployment rate of 4.0% in January 2020, equaling an historic low. Despite a precipitous decline in employment that pushed the regional unemployment rate to an all-time high of 14.2% in June, the steady economic recovery since then has resulted in the region’s unemployment rate falling to 7.0% in December—the lowest among all large metro areas in Canada.

OUR 2021 OUTLOOK With reduced population growth in 2020 serving to constrain labour supply, and a continued re-opening of the economy, the regional unemployment rate will fall back into the range of 5-6% in 2021.

UNEMPLOYMENT RATE

RENNIE OUTLOOK 2021

INFLATION

Consumer price inflation matters insofar as it both indicates the extent to which the value of money erodes over time (with lower inflation equating to a greater preservation of the value of money) and guides the Bank of Canada’s decision-making on interest rates: the higher the inflation, the higher interest rates go, and vice versa. With the demand for goods and services waning significantly in the aftermath of our response to Covid-19 (that is, the implementation of an economic lock down), Canadian inflation also slowed—in fact, it turned negative (deflation) in both April and May.

Inflation has since rebounded somewhat, but remains below the Bank of Canada’s target of 2%.

OUR 2021 OUTLOOK As the Canadian economy expands back towards its pre-Covid level, elevated demand and, for some products, constrained supply chains will put upward pressure on prices. That said, inflation is expected to remain below 2% in 2021.

CONSUMER PRICE INFLATION

WAGES

Despite the ongoing headwinds facing BC’s labour market, median weekly wages (for full-time workers) continued to rise through 2020: by the end of last year, wages were up by 4.7% compared to one year earlier. As this was more than double the rate of consumer price inflation, the purchasing power of those who were able to continue working through the pandemic rose.

OUR 2021 OUTLOOK Wages are expected to rise only modestly in 2021; that is, at or slightly above the anticipated rate of inflation (of near 2%). While somewhat counter-intuitive given the continuing recovery in employment and the tightening of the labour market, many of the job additions will be in sectors that were initially hit the hardest by the pandemic (and that pay less, on average).

WAGES

RENNIE OUTLOOK 2021

INTEREST RATES

The unprecedented monetary stimulus introduced by the Bank of Canada at the outset of the Covid-19 outbreak— including lowering the overnight target interest rate to (effectively) zero and engaging in a bond-buying program that pushed longer-term interest rates to historic lows—provided much-needed stability to households and businesses in 2020. As the economy continues to recover and as long as inflation remains below the 2% threshold for a prolonged period of time, the Bank of Canada’s actions (or inactions, depending on how you look at it) are likely to suppress interest rates throughout the economy into 2023.

OUR 2021 OUTLOOK It is unlikely that the Bank of Canada will change its policy interest rate in 2021 from its current 0.25%. However, with the Canadian economy stabilizing in the wake of the pandemic, and fewer investors seeking shelter from riskier investments, fixed mortgage rates could rise by up to 0.5 percentage points.

INTEREST RATES

RENNIE OUTLOOK 2021

get the data .

Inform your important real estate decisions with data. Register to receive our intelligence publications at intelligence.rennie.com or reach out to your rennie representative to get the data. THE RENNIE REVIEW is a detailed monthly report providing insights into sales, listings, and pricing trends throughout the Vancouver Region’s housing resale market. THE RENNIE ADVANCE is a brief monthly update on the latest regional sales and listings activity, produced the same morning as the previous month’s data are released. THE RENNIE OUTLOOK is an annual compendium of housing, demographic, and economic predictions for the year ahead. THE RENNIE LANDSCAPE is a semi-annual publication that tracks the myriad factors that directly and indirectly impact Metro Vancouver’s housing market. THE RENNIE BRIEF is a topical research brief on issues relevant to our industry, as they emerge. RENNIE INSIGHTS are in-depth research papers on a range of real estate, economic, land use, and planning policy forces that shape our communities. THE RENNIE PODCAST presents engaging, insightful, and sometimes humourous discussions about everything real estate, for the real estate interested.

The rennie intelligence team comprises our senior economist as well as housing and consumer analysts who empower our developer clients, rennie advisors, institutional advisory clients, and the entire rennie team with comprehensive data and a trusted market perspective.

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