Cameron Muir, senior marketing analyst for CMHC (right) and CMHC regional economist Carol Frketich reflect on gains.

Rising mortgage rates and declining home sales across the Lower Mainland are not signs the sky is falling on the real estate market, according to Canada Mortgage and Housing Corp. experts.

The torrid market of recent years, fuelled by record-low interest rates and marked by bidding wars, will be replaced by a strong market that is moved along by other economic fundamentals.

The agency is expecting to see demand for new housing cruise along at 28,000 to 30,000 units through 2011.

“There is no market correction on the horizon,” Cameron Muir, CMHC’s senior market analyst, said in an interview Thursday during the agency’s annual housing outlook conference in Vancouver.

“We see very strong fundamentals in the marketplace — from employment growth, from migration, from an improving provincial economy, greater exports, and an improving tourism sector — that [are] going to really keep the housing market robust over the next several years.”

CMHC predicts that in 2005, B.C. will be the only province in Canada to see continued growth in new home construction. It estimates the province will see 32,400 new units built, a 2.2-per-cent increase from 2004. Greater Vancouver, with 20,000 new housing units, will likely see most of that new construction.

However, Muir said overall sales are expected to level off as new construction catches up with demand to increase inventories and the “pent-up demand” of first-time buyers and investors begins to wane.

MLS sales across Greater Vancouver are expected to hit 38,600 in 2004, Muir said, and tail off to an even 38,000 in 2005. “We’ll see prices still climb, but not at the kind of rates we’ve seen over the past two years,” he added.

Greater Vancouver homeowners will have seen the value of their homes increase 15 to 17 per cent in 2004. Muir said values will climb in the four- to eight-per-cent range in 2005.

Muir said rising mortgage rates, which are expected to increase by one percentage point over the next year, will hurt affordability for new buyers, but that should be offset by improvements in the economy.

Muir said the bottom line is that there will be an end to the “seller’s market” the Lower Mainland has experienced during the past two years where “buyers have been buying up practically everything.”

As the market “approaches more balanced conditions,” Muir said homebuilders who want to be successful will have to focus on the fundamentals of migration, and a demographic shift in favour of baby boomers.

“The largest market that we’re going to experience in those existing owners that have benefited from a large equity build up over the last several years,” Muir said. “These will be in the form of either move up, move over, move down buyers.”

In his presentation, Muir said that projections of new housing demand show that by 2016, demand for the 65-and-over age group will outstrip the 35-to-64 demographic by almost a quarter.

By 2021, Muir said the 65-and-over age group will demand more than twice the amount of new housing than the 35-to-64 demographic.

CMHC regional economist Carol Frketich said economic conditions are ripe to support a continued strong market. In 2005, she said, housing demand will be influenced by employment growth experienced in 2004.

“Housing demand typically lags employment growth,” Frketich said. “So, if you look at 2003, it was a good year in terms of employment gains, and there was very strong housing demand [in 2004].

“Going forward, once again, this year saw very solid gains in full-time employment, and that will support demand for housing again next year.”

Commodity demand due to world economic growth that will hit five per cent this year has helped fuel the recovery of B.C.’s economy, but Frketich added that the province is diversifying its job base.

About three-quarters of all jobs are now in the service sector, she said, and the province is seeing significant growth in the technology and biotech sectors, which helps draw people back to B.C. Frketich said people poured out of the province in the mid 1990s while B.C.’s economy struggled in relation to the rest of the country.

That trend has been reversing since 1998, she said, and in the second quarter of 2004, B.C. saw net migration of 10,249 people. Frketich said international migration will continue to boost housing demand through 2011.

There are risks to economic growth. Frketich said the high Canadian dollar could dampen export demand, but she added that slower economic growth means lower inflation.

With inflation in check, Frketich said the Bank of Canada will be more inclined to keep interest rates low.

Muir said the Housing Outlook conference is a chance for CMHC to share its research with all real estate industry stakeholders, from developers to builders and lending institutions to “help the market operate more efficiently.”

Almost 400 attended Thursday’s event at Vancouver‘s Hyatt Regency Hotel.

© The Vancouver Sun 2004