the rennie outlook 2022

rennie outlook 2022

RENNIE OUTLOOK 2022

This past year was once again a year of extremes. Fortunately, these extremes were—for the most part—less painful than those of 2020, when the pandemic suppressed our economy, our ability to travel, and the frequency with which we were with family and friends. Said extremes from 2021, which included record resale and pre-sale counts, historic job growth (or, more precisely, job recovery), and inf lation that we haven’t experienced in 20 years, were somewhat—how should we say it—“problematic” for the predictions we laid out at the beginning of last year as part of the 2021 rennie outlook. To be fair, we were fairly spot- on about some things (housing starts, wage growth, interest rates, and migration), but we were way off about others (see: housing market activity). Having here noted that we were previously “right” or “wrong” in our myriad predictions, we are behooved to also note that the value of providing the predictions contained herein lies not just in the numbers themselves, but also in the context and logic that we share that underpins the predictions. With that in mind, we hope you find this 2022 edition of the rennie outlook useful. For each element considered in this report, thedirectionof ourprediction is indicatedbyan increase over recent trends (an “up” arrow), no significant change (a “side-to-side” arrow), or a decrease (a “down” arrow).

table of contents .

2 INTRO 3 HOUSING 5 POPULATION 7 JOBS, INFLATION & INTEREST RATES

All the best in 2022, and stay safe.

RyanWyse Senior Analyst

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

rwyse@rennie.com

Copyright © 2022 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 February 3, 2022. 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 2

RENNIE OUTLOOK 2022

housing: an off-the-charts 2021 sets the stage for 2022

RESALES

At the outset of 2021, we foresawa housingmarket that would continue to recover, withmost signs pointing to increased activity over 2020’s level. This ended up being true in spades. Our prediction of 50,000 year-endMLS sales count would prove to bewell short of what was ultimately a record-setting year, with theVancouver Region tallyingmore than 70,000 sales–the most in the region’s history. While many of 2021’s demand-side tailwinds are likely to support sales activity in 2022 (including demographic and financial factors), emerging headwinds (such as record-low housing inventory, rising interest rates, and affordability challenges) will cap sales counts well below the historic highs from last year.

OUR 2022 OUTLOOK Record in-migration in 2022 and an accumulation of wealth through 2021 (as measured by the value of mortgage-free and household savings) will be offset by market headwinds (per the above) to yield 56,000 MLS sales in 2022. This would be 21% below 2021 but 10% above the long-run average. We expect this sales total to comprise 20,000 houses, 8,000 townhomes, and 28,000 condos.

RESALES

PRE-SALES

Metro Vancouver’s pre-sale market rode the wave of a strong resale market in 2021, with the double-digit percentage increases in resale values across all home types providing pre-sale buyers (including end-users and investors) with the confidence to participate in great numbers in the region’s housing futures market. Of the 26,000 pre-sales in 2021, a record 12,900 concrete homes sold, a record 6,600 woodframe homes sold, and a record 6,500 townhomes sold. The overall pre-sale count was 28% above the previous high of 20,300 in 2016, and 90% above the past-decade average.

OUR 2022 OUTLOOK On the heels of a record-setting 26,000 pre-sales in 2021, activity is likely to slow in 2022 due a combination of home supply constraints and rising interest rates. We expect to see 21,000 pre-sales in Metro Vancouver in 2022—the 2nd-highest count ever—including 10,000 concrete homes and 11,000 woodframe homes and townhomes.

PRE-SALES

RENNIE OUTLOOK 2022

HOUSING STARTS

New housing construction picked up in 2021 after an understandably slow 2020 due to the initial onset of the pandemic and the social-distancing restrictions and supply-chain challenges that followed. Specifically, the number of housing starts in Metro Vancouver jumped by 16% between 2020 and 2021, surpassing 26,000 last year. This total was also 16% higher than the previous-decade annual average. Almost all of this increasewas inapartment construction,withthesehigher-densityhousingstarts surgingby21%over the past year to 19,500—the second-highest count ever in this region. A 30-year high in the number of purpose-built rental starts in 2021 (of 6,683) also contributed to the surge in new housing construction. Data on issued building permits over the past 2 years—averaging 22,700 homes in 2020/21 versus 25,150 in 2018/19— points to a marginal slowdown in starts in 2022.

OUR 2022 OUTLOOK We expect Metro Vancouver to achieve 25,100 gross housing starts in 2022, a 3% retreat from 2021 but still 12% above the previous-decade average. Attaining this level will be important, too, as annual net additional housing demand over the next 3 years is projected to average just over 25,000 units.

STARTS

HOUSING COMPLETIONS

Despite challenging pandemic conditions, there were—remarkably—more housing completions inMetro Vancouver in 2021 than in any previous year, with the 25,200 completed homes up 5% from 2020 and 30% versus the previous-decade annual average.

OUR 2022 OUTLOOK Despite lingering supply-chain concerns, the rebound in housing starts in Metro Vancouver in 2020 and 2021 will support a historically-elevated number of housing completions in 2021, at 24,200–a level consistent with the past 2 years.

COMPLETIONS

RENNIE OUTLOOK 2022

demographics: preparing for record growth

TOTAL POPULATION

Record-setting immigration, a rebounding international student population, and a tightening (and tight) labour market that will support an expansion of the number of temporary workers all point to an elevated pace of population growth in 2022—not only in Canada as a whole, but also here in BC and in Metro Vancouver. The most obvious consequence of adding many more people to our region—necessary for economic reasons—is that it puts pressure on our housingmarket to ensure everyone has a suitable, adequate, and affordable place to live as an owner or renter. That will be one of our greatest collective challenges as a region as we look at the year (and years) ahead.

OUR 2022 OUTLOOK We expect Metro Vancouver to add a record number of new people in 2022, at 68,000. This would be 70% higher than the past-decade annual average, and would be primarily driven by international migration.

POPULATION GROWTH

IMMIGRATION

What a difference a year makes. After admitting only 185,000 permanent residents in 2020—the fewest since 1998— Canada’s elevated (and by historical standards, lofty) immigration target was met in 2021, with the country welcoming 405,000 permanent residents. Having surpassed the 2021 target of 401,000, it appears safe to expect the 2022 target of 411,000 permanent residents to be achieved. With immigrants being young (a typical age of 28), educated, and skilled (70% of immigrants are in the economic class), this will serve to support Canadian labour markets. Out here on the west coast, with BC attracting 17% of Canada’s new immigrants, and with Metro Vancouver attracting 78% of those that come to BC, this will also have implications for our housing market, both ownership and rental.

OUR 2022 OUTLOOK Population growth in BC will once again be driven by immigration in 2022, with the province welcoming a record of more than 70,000 permanent residents. Of these, 55,000 will call Metro Vancouver home—a new record.

IMMIGRATION

RENNIE OUTLOOK 2022

DOMESTIC MIGRATION

An under-reported demographic storyline that has emerged since the beginning of the pandemic has been themagnitude of westward migration within Canada. More specifically, between Q2 2020 and Q3 2021 (the latest reference period for the data), BChas attractedmore than 48,000 net interprovincialmigrants. To put this in context, the next “most popular” destination, Nova Scotia, attracted 13,000 people on a net basis. Lifestyle factors combined with the ability to work remotely, a relatively well-performing labour market with strong prospects, and less-restrictive pandemic-related policies than in some other parts of the country have contributed to this, and will continue to do so in the coming year. While these interprovincial migration flows will continue to add to Metro Vancouver’s population, affordability concerns will see intraprovincial flows for the region remain negative.

OUR 2022 OUTLOOK Despite strong net inflows of people from the rest of Canada into BC as a whole in 2022, Metro Vancouver is expected to lose approximately 1,500 residents through domestic migration, as the region’s 11,000 net interprovincial in- migrants are outnumbered by the net loss of 12,500 people to other parts of BC.

DOMESTIC MIGRATION

RENNIE OUTLOOK 2022

jobs, wages, inflation & rates: bracing for change

EMPLOYMENT

Immediately following theunprecedenteddecline inemployment that swept through the country in the first fewmonths of the pandemic in 2020, a protracted period of jobs recovery began. Here in Metro Vancouver, employment fell by 270,000 jobs between April and June 2020, before 218,000 of those job losses were recovered through the end of that year. The following year saw the recovery continue unabated, with another 78,000 jobs being added throughout 2021. Heading into 2022, then, the employment level inMetro Vancouver was 2% higher than its pre-pandemic level, setting the stage for a strong year of employment growth that should better re-align the regionwith its pre-pandemic trend level of jobs.

OUR 2022 OUTLOOK Metro Vancouver’s employment base is expected to grow by 3% in 2022 through the addition of 40,000-50,000 net-new jobs. While growth of this magnitude wouldn’t be without precedent, it would exceed (by a significant margin) the average annual job additions of 32,000 achieved in the decade before the pandemic.

JOB GROWTH

UNEMPLOYMENT

Along with the rest of Canada, Metro Vancouver experienced a steady and significant improvement in labour market conditions throughout 2021.While theyearbeganwiththe regionsportinganunemployment rateof 9%—higher thanthe peak unemployment rate experienced during TheGreat Recession of 2009, but also amarkedly lower than the pandemic- high of 14.5% achieved in June 2020—it endedwith an unemployment rate of only 5.6%. This ranked as one of the lowest in Canada and was not far off the 4.5% rate the region featured immediately preceding the pandemic.

OUR 2022 OUTLOOK Metro Vancouver’s labour market will continue to tighten throughout 2022 due to a combination of employment growth and demographic factors. As such, we expect the unemployment rate to settle in the 4-5% range by the end of the year.

UNEMPLOYMENT RATE

RENNIE OUTLOOK 2022

INFLATION

Since the Bank of Canada adopted inflation-targeting as an official policy in 1991, consumer prices have largely remained stable, typically rising on an annualized basis within a band of 1-3%. The onset of the pandemic represented the beginning of whatwouldbea roller-coaster for consumerpricechanges inCanada,with inflationbecoming deflation inApril andMay 2020 (as prices actually fell), before bouncing between 0.1% and 1.0% through the balance of 2020. By December 2021, annual inflation had exceeded 4% for five straight months due to a combination of supply chain disruptions, low interest rates, and an accumulation of wealth for many households through the pandemic. In real estate and related sectors, rising costs are expected to continue to be a material headwind impacting new and existing housing supply-in the coming year. Supply chain knots and labour shortages are likely to keep costs elevated in the near-term.

OUR 2022 OUTLOOK While too late for some, the Bank of Canada now has inflation squarely in its sights and is expected to raise interest rates in response to the highest inflation we’ve experienced in two decades. Expect inflation to fall from its current 4.8% to 3% by the end of 2022.

CONSUMER PRICE INFLATION

WAGES

A trivially paradoxical feature of economic change in BC in 2020 was that median weekly wages (for full-time workers) in BC rose by 4.8%. Notably, this was not actually in spite of the pandemic’s negative impacts on the economy, but rather directly a result of them, as itwas primarily lower-paying jobs thatwere initially lost due to social-distancing restrictions, leaving relativelymore higher-income earners in the wage calculation by the end of 2020 than at the beginning. Asmany of these lower-paying jobswere re-activated in2021, it had theperverse effect of draggingheadlinewagegrowthdown, to 2.8% in 2021.

OUR 2022 OUTLOOK Wage inflation has not, to this point, contributed meaningfully to consumer price inflation. However, with consumer price inflation having remained elevated for much of 2021—and with the general public notably being availed of this—we will see upward pressure on wages in 2022. Expect them to rise between 3-5% this year as workers seek to keep pace with recent perceived cost-of-living changes.

WAGES

RENNIE OUTLOOK 2022

INTEREST RATES

The Bank of Canada’s policy interest rate has now been at its effective lower bound of 0.25% since early in 2020, despite increasing calls for the Bank to raise its trend-setting rate to combat high consumer price inflation. These increases will come, and sooner than later (likelybeginning inMarch). Thiswill have the effect of directly increasing the carrying costs of debt in the form of lines of credit (including HELOCs) and variable rate mortgages. As the economy continues to strengthen, bond yields are also projected to increase in part to offset expected future inflation, and in part because of Bank of Canada will soon begin freeing bonds from its balance sheet—both of which will impact fixed mortgage rates.

OUR 2022 OUTLOOK The Bank of Canada has signalled its intention to raise the overnight lending rate in 2022. This upcoming tightening phase could see the target rate rise back to its pre-pandemic level of 1.75%, with associated increases trickling into 2023. Additionally, bond yields will continue to rise, pushing up fixed mortgage rates by up to 0.75%.

INTEREST RATES

RENNIE OUTLOOK 2022

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 theVancouver 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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