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Too many new units is just one indication B.C.'s real estate market remains off its game

To put it mildly, the B.C. real estate sector has had a difficult 2019. As of the end of August, home sales sat well below last year’s levels, down 16 percent. While there have been encouraging signs in recent months that activity is picking up, the market and those who make their living in it still face many headwinds.

The most obvious one: demand for new housing has slipped, creating headaches for developers and a thinner pipeline of projects for construction crews. To add insult to injury, still more supply, in the works for the past few years, is completing as 2019 draws to a close. These homes will add to a backlog of inventory, making the market more competitive for developers launching new projects.

If construction goes according to plan, some 9,000 multi-family units will be finished in Metro Vancouver and the Fraser Valley during the third and fourth quarters of 2019, according to a recent report by Vancouver-based real estate marketing firm MLA Canada. In a typical quarter, the region sees about 2,000 to 3,000 condo presale units completed.

The upshot could be more activity on several fronts, the report suggests: “Detached home sales rising as new condominium owners sell their single family homes and move into their new units; increased amount of condominium inventory on the market as investors put their new apartments up for sale; or, an impact on vacancy rates as homes enter the rental market.” 

For their part, developers and construction workers will have to get used to what looks like survival of the fittest. Provincial numbers aren’t available, but nationwide the number of construction companies going insolvent is rising, albeit from a low base, the Office of the Superintendent of Bankruptcy Canada reports.

Although we’d rather not speculate, it doesn’t take a rocket scientist to determine that the broader outlook is souring in B.C. For example, September’s edition of the Business Barometer Index published by the Canadian Federation of Independent Business put the province at about 53 points—a big drop from 70 early last year. Another red flag is single-family housing starts. Builders of single-family homes are typically smaller and can pivot faster than apartment developers, making them a useful leading indicator. In B.C., they’re pulling back, data from Canada Mortgage and Housing Corp. shows. As of August, the 12-month average for single-family housing starts was 671, down from a cycle high of 893 in February 2018.

It’s much too soon to declare imminent doom and gloom, but one thing’s for sure: conditions have shifted dramatically in the real estate space, creating opportunities for those who can adapt.

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