rennie outlook 2023

RENNIE OUTLOOK 2023

It’s a tricky task: laying bare predictions for a year ahead based on the available data but without the benefit of knowing how the coming months may transpire and conspire to alter the trajectory of the things used to inform said predictions. Alas, this is what we signed up for in producing the rennie outlook , now in its third annual iteration—a compendium of predictions of key macroeconomic, demographic, and housing- related measures for the coming year. To be fair, “alas” is probably the wrong word to use in this context. There is no real burden associated with producing forecasts, as long as they are rooted in quality data, objective thought, and the appropriate balance between art and science as it pertains to either extending recent trends into the future or charting a new path for them. On this point, the value of presenting the predictions contained herein are, as we see them, twofold. First, the predictions represent our best (educated) guesses for where things like home sales, prices and rents, inflation, interest rates, and employment are going in the next 12 months. Second—and perhaps most importantly—we elaborate on the assumptions and context that inform our expectations for the housing market and macroeconomy, with the notion that this can be the basis for constructive conversation and debate about how our market is evolving.

table of contents .

2 INTRO

3 HOUSING: SALES, PRICES, & RENTS

5 DEMOGRAPHICS

7 JOBS, INFLATION & INTEREST RATES

We hope you enjoy this edition and find its content useful.

Ryan Wyse Senior Analyst

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

rwyse@rennie.com

Copyright © 2023 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 31, 2023. Data from the Greater Vancouver and Fraser Valley Boards, Statistics Canada, Zonda Urban, CMHC, & 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 2023

housing: the inertia of 2022 carries into 2023

RESALES

At the beginning of 2022, we foresaw record-low housing inventory, increasing interest rates, and affordability challenges in the year ahead. Ok...perhaps we didn’t quite predict the magnitude of rate hikes through last year, but the expectation was that housing market activity generally, and MLS sales in the Vancouver Region specifically, would come in below 2021’s record of almost 70,600 transactions. Indeed this was the case, with our estimate of 56,000 MLS sales proving to be more robust than the 43,600 sales that took place. The first and second halves of 2022 were really two different markets, with the annualized pace of sales in 1H (54,200) coming in at about our full-year prediction, before the pace dropped off in 2H to an annualized pace of 32,100 sales.

OUR 2023 OUTLOOK The inertia in the Vancouver Region’s housing market from the second half of 2022 will carry into the first half of 2023, with a total of 42,000 MLS sales predicted for the year—18% below the past-decade average. This would include sales of 15,000 detached homes, 8,000 townhomes, and 19,000 condos.

RESALES

PRE-SALES

As with resale, the pre-sale segment of Metro Vancouver’s housing market in the second half of 2022 was very different from that in the first half. Indeed, with 2021’s wind still in its sails, there were more than 11,100 total pre-sales in the region in 1H, with this number then falling to just 3,500 in 2H as higher interest rates, combined with falling prices in resale, eroded buyers’ appetite for pre-sale homes. This put last year’s pre-sale count (of 14,600) 4% below the past 10-year average. The path for pre-sale counts in 2023 is expected to improve through the latter half of the year, as we are only just entering what is likely to be a period of falling mortgage rates and a recovery in the region’s resale market—the latter being an important pre-cursor to a more active pre-sale market.

OUR 2023 OUTLOOK Overall, we expect activity in Metro Vancouver’s pre-sale market in 2023 to be slightly slower than in 2022, based largely on what looks to be a sluggish start to the year. Overall, we anticipate there being 13,000 pre-sales by year-end, including sales of 6,000 concrete homes, 4,500 woodframe homes, and 2,500 townhomes.

PRE-SALES

RENNIE OUTLOOK 2023

HOUSING STARTS

Our prediction from last year that there would be 25,100 housing starts in Metro Vancouver in 2022 was ultimately more or less on the mark (there were just under 26,000 starts). This put 2022’s housing construction activity, insofar as starts are concerned, 12% above the previous decade’s annual average. As we look ahead to 2023, it is the number of building permits issued over the past couple of years, along with a proportion of previously-sold multi family projects throughout Metro Vancouver, that will largely dictate the number of housing starts that are realized. It is important to note, however, that a tight labour market—particularly in the construction industry, which has the highest job vacancy rate of any sector in the province—could at the margin serve as constraint on building activity. OUR 2023 OUTLOOK

While CMHC is predicting what would amount to an all-time record of 33,000 housing starts for Metro Vancouver in 2023, we expect a more “modest” 27,900 starts—still 7% higher than 2022’s and 20% above the previous decade-average.

STARTS

HOUSING COMPLETIONS

On the heels of a record 25,200 housing completions in Metro Vancouver in 2021—all the more remarkable given it was achieved in the midst of a pandemic—the region managed to complete 15% fewer homes in 2022, rendering our prediction for last year (of 24,200 completions) overly-optimistic. The construction delays due to labour constraints and a lack of available materials (the latter the result of lingering supply chain disruptions)—which held back completion counts in 2022—are expected to be less of a factor in 2023.

OUR 2023 OUTLOOK Based on previous years’ starts counts and the current inventory of homes under construction, we predict housing completions in Metro Vancouver will total 23,400 in 2023. This would be 9% higher than in 2022 and 11% above the past- decade average.

COMPLETIONS

RENNIE OUTLOOK 2023

prices & rents: two different paths in 2023

HOME PRICES

The million dollar question in our housing market is how far will prices drop and when will they start to rise again. To level-set, benchmark MLS condo prices have fallen by 9% from their April 2022 peak, while benchmark detached prices have fallen by 15% from their February 2022 apex. To-date these declines have been shallower than during previous down-and-up price cycles (see: 2008-09 and 2017-18), and with persistently low inventory, pent-up demand, a strong job market, elevated net migration, and what is projected to be a more favourable interest rate environment, prices are expected to begin rising again in 2023. OUR 2023 OUTLOOK

We expect benchmark MLS condo prices to reach their floor in the early spring before growing again thereafter, to 98% of their 2022 peak by the end of 2023. For detached homes we see the price recovery lagging that of condos, reaching 88% of their 2022 peak price level by year’s end.

PRICES

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MONTHLY RENTS

Rental markets across the country, and certainly here in Metro Vancouver, have been on a roller-coaster ride since the beginning of the pandemic in 2020. First, vacancy rates rose and rents stagnated as the renter demographic was hit hardest by social-distancing policies that mostly impacted sectors like food services, hospitality, and tourism. Current rental market conditions are more akin to those of pre-pandemic period, except that average monthly rents have been rising at a rapid pace: in 2022, average advertised asking rents rose by 20%, though this pace is expected to slow through 2023.

OUR 2023 OUTLOOK By the end of 2023, we expect that average advertised asking rents in Metro Vancouver will, on a year-over-year basis, be 7% higher, with monthly rent for studios averaging $2,500, 1-beds $2,700, and 2-beds at $3,500.

RENTS

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RENNIE OUTLOOK 2023

demographics: Canada flexes its migration muscle

TOTAL POPULATION

Last year was characterized by both record-setting permanent resident admissions and record-setting permit issuances (work and study) in Canada. We expect 2023 to be similar, with this year’s permanent resident admissions likely to set a new record, accompanied by a robust number of work and study permits being issued. This will have implications for all provinces and territories, more or less. For British Columbia, it will bolster a workforce with a record number of job vacancies and a close-to-historically low unemployment rate. On the flip side, continued— and elevated—growth will have implications for the province’s housing markets, including here in Metro Vancouver.

OUR 2023 OUTLOOK We expect Metro Vancouver to grow by 63,200 people in 2023, driven by net international migration. While this would be 19% below last year’s growth, it would be the second-most annual additions on record.

POPULATION GROWTH

IMMIGRATION

For the third year in a row in 2022, Canada’s federal government set new, higher 3-year immigration targets in an effort to bolster the country’s labour force in the face of an aging population. By last year’s end, Canada had welcomed more than 430,000 permanent residents over the prior 12 months, surpassing 2021’s (previous) record of 405,000. Of the total national permanent resident admissions in 2022, 14% landed (or were living in) British Columbia, totalling 58,520 “newcomers”. Of these, 79%—46,240—came to (or were living in) Metro Vancouver. Canada’s 2023 goal is to admit 465,000 permanent residents—8% more than 2022’s record, with direct implications on the labour and housing markets of BC and Metro Vancouver.

OUR 2023 OUTLOOK As Canada plans to welcome a record 465,000 permanent residents in 2023, we expect BC to account for 66,000 of them, with almost 52,000 calling Metro Vancouver home.

IMMIGRATION

RENNIE OUTLOOK 2023

DOMESTIC MIGRATION

Since Q2 2020 (the beginning of the pandemic), British Columbia has attracted more domestic migrants, on a net basis, than any other province or territory in the country, at 44,900. For context, the second most popular destination has been Alberta (on the strength of a bumper Q3 2022 for net domestic migration to the province), attracting 27,400 people on a net basis; meanwhile, Ontario has shed the most people to other parts of the country, losing more than 78,000. Having said this, Q1 and Q2 2022 were marked by more modest quarterly net inflows to BC than had been experienced in the prior two years, and Q3 actually saw 4,800 more people leave the province for elsewhere in Canada, with all of that net loss—plus some—accounted for by Alberta (author’s note: curse the “Alberta Is Calling” campaign!).

OUR 2023 OUTLOOK With more modest net inter-provincial migration flows to BC expected in 2023, we expect Metro Vancouver to welcome 8,700 (net) migrants from other parts of Canada this year. With an expected 12,500 people (net) leaving Metro Vancouver for other parts of BC, the region would see a net domestic loss of 3,800 people.

DOMESTIC MIGRATION

RENNIE OUTLOOK 2023

jobs, wages, inflation & rates: moderation is in the cards

EMPLOYMENT

After a sussultatory period for employment spanning most of 2020 through 2022—with the year-to-year change in the number of jobs in Metro Vancouver swinging widely from a loss of 124,300 in 2020 to a net gain of 118,100 in 2021 and an additional bump of 39,500 in 2022—we expect regional employment growth to be more muted in 2023. More specifically, the (slightly) below-average job additions we’re predicting for the coming year reflect an already-tight labour market, slowing consumer spending and business investment, and continued uncertainty about the trajectory for economic growth in the near-term.

OUR 2023 OUTLOOK Employment in Metro Vancouver is expected to grow by just under 30,000 jobs over the coming year. As noted below, an expected, though slight, deterioration in the labour market conditions—vis-a-vis a rising unemployment rate—will at the margin serve to mitigate what would otherwise be more robust job growth.

JOB GROWTH

UNEMPLOYMENT

For the first time since 2019, labour markets across Canada in 2022 were characterized more by stability than volatility. This was certainly true for Metro Vancouver, where the unemployment rate gradually slid from 5.4% at the start of the year to 4.5% by the end. Though this continued improvement in the region’s labour market—which began in earnest after the unemployment rate peaked at 14.6% in May 2020—labour supply and demand returned to a more familiar dynamic, reminiscent of the period from January 2017 to March 2020 when the unemployment rate remained below 5.0%.

OUR 2023 OUTLOOK Higher interest rates, a declining job vacancy rate (amidst a falling number of job vacancies), and headcount consolidation after a fervent period of hiring for many industries, have paved the way for a modest rise in Metro Vancouver’s unemployment rate into the middle of 2023. We see the rate rising to 5.3% in June before falling back to 4.7% by year’s end.

UNEMPLOYMENT RATE

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RENNIE OUTLOOK 2023

INFLATION

The level and persistence of inflation in 2022 in Canada put a nail in the view espoused by “Team Transitory” (which included one of your authors) that high, pandemic-related inflation would in relatively short order become but a historical footnote. Indeed, the annual rate of change in Canada’s Consumer Price Index peaked at 8.1% in June 2022, its highest level in four decades and the result of rising home prices, rents, shipping costs, energy prices and, yes, even interest rates. Fortunately, while we’ve now experienced 21 consecutive months of inflation exceeding the upper limit of the Bank of Canada’s target range of 1-3%, we’ve seen it abate for the past six months, with more relief on the horizon.

OUR 2023 OUTLOOK In what will be deemed a counter-intuitive view by some and a logical one by others (and both by a few), we predict that Canada’s headline inflation rate will fall substantially in the first half of 2023—from its current 6.3% to 3.1% by April— before slipping into the Bank’s target range from May through the end of the year.

CONSUMER PRICE INFLATION

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WAGES

The stabilization of labour markets over the past year has been accompanied by steadier, though amplified, growth in workers’ earnings. Here in British Columbia, annual increases in average weekly earnings reached a high of 4.8% in March 2022, following year-over-year increases that touched 8.8% in early 2021 and had previously peaked at 12.2% midway through 2020. For the full-year 2022, year-over-year growth in earnings averaged 3.6%, versus 2.4% in the decade ending in March 2020.

OUR 2023 OUTLOOK While we’re beginning 2023 with year-over-year wages in BC rising by 4.0%, we expect a more moderate pace of increase through the balance of the year. In our view, annual wage growth will be in the range of 2-3% by the end of 2023, which is consistent with the decade of wage growth preceding the onset of the pandemic.

WAGE GROWTH

RENNIE OUTLOOK 2023

INTEREST RATES

The year 2022 will be remembered for a lot of things, not the least of which was an interest-rate-hiking path pursued by the Bank of Canada that was, by some measures, unparalleled. In total there were 8 hikes in 2022, bringing the trend-setting rate to 4.25% by the end of last year, up from a mere 0.25% in March. While Canada’s central bank did boost the rate by an additional 25 basis points in January 2023, the Bank expects to abstain from additional hikes for the foreseeable future as the country’s economy digests and adjusts to the higher rate environment. Ultimately, the path of the Bank’s policy rates rests on predictions of, and assumptions about, inflation.

OUR 2023 OUTLOOK We expect the Bank of Canada to not only cease hiking its policy interest rate, but to in fact cut it by 25 basis points in the summer of 2023 as inflationary pressure abates. We expect this to be followed by two additional cuts in the fall, yielding a year-end policy rate of 3.75%.

INTEREST RATES

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RENNIE OUTLOOK 2023

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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