BC’s Strong Economy Responsible for Record Sales
Just last week the BC Real Estate Association announced 2016 was a record setting year for home sales. Sales in the province were up 9.5% from 2015, a previous record.
The incredible surge in sales had little to do with foreign capital and cheap credit. BCREA’s chief economist Cameron Muir explains the record year;
“Broad-based consumer demand driven by strong economic conditions, employment growth, consumer confidence and an expanding population base pushed home sales to record levels in many B.C. regions last year.
Strong economic conditions?
Household debt levels have never been higher. Canadians owe $1.67 in debt for every dollar of income they earn. As house prices soar, citizens are forced to over leverage to get into the housing market. As a result, household leverage has never been higher.
As household leverage hits record highs, home ownership also reaches new highs in BC, hitting a whopping 70%. With home ownership hitting new highs so too does unaffordability. Price to household income in BC takes off.
Employment growth has taken off. There’s just one problem, it’s the wrong kind of growth. All of the jobs created in 2016 were part time according to a recent report from TD Economics, and of course we all know wages are stagnant.
TD Economics report went on to say;
“Steep losses in energy-producing provinces are only partially to blame for the decline in full-time positions. Outside of these provinces, part-time job growth vastly outpaced full-time positions. One of the few industries to buck the trend was finance and insurance. But, even here caution is warranted. A concentration in British Columbia and Ontario captures the feedback loop from strong housing markets that are set to cool and weigh on full-time job demand going forward.”
Solidifying TD’s caution, 77% of new business formations in the past year were in real estate services and construction. Not the rebalancing the Bank of Canada was hoping for.
Expanding population base?
Sure, that could certainly drive prices up. But 40% in two years? Unlikely. As I mentioned in my post The Big Boom, housing completions in BC last year were 30% above the 5 year average. Multi family completions were 32% above the 5 year average and housing starts for 2016 also hit record highs.
If the economy was so strong 34% of Metro Vancouver residents wouldn’t be planning on moving. Makes you wonder what metrics we’re measuring…
“What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.”– Mark Twain