NORTHEAST B.C. BUZZ QUIETS QUICKLY ON THE GROUND

AVERAGE VANCOUVER HOUSE MAKES MORE IN A MONTH THAN MOST RESIDENTS MAKE IN A YEAR

SURVEY HINTS THAT RECREATION UPLIFT IS COMING

U.S. HOMEOWNERSHIP FALLING, RENT DEMAND RISING

“The measure of who we are is what we do with what we have.” -Vince Lombardi

Northeast BC Buzz Quiets Quickly On The Ground

With the announcement from Malaysia gas giant Petronas that it has decided to forge ahead with a $36 billion liquefied natural gas plant
and related pipelines, buzz has been building again about rental investing in the BC northeast. Canada Mortgage and Housing Corp.’s say rents in Fort St.
John and Dawson Creek are as high or higher than in Vancouver. Statistics Canada says the unemployment rate is no low in the region it can’t even be
counted.

But when you get down on the ground, the heady buzz about investing in real estate in the Fort St. John-Dawson Creek area quiets quickly.

Dawson Creek has an official apartment vacancy rate of 8.9% – up from 8% a year ago – according to CMHC, but rental property managers say the real rate is
closer to 10% or even higher, if the large secondary market (in-home suites and condos for rent) is counted. And, based on listings in Craigslist and local classifieds, it appears easy to find one-bedroom apartments renting in the $800 range, which is below the official
CMHC average of $941.

In Fort St. John, which is the second-biggest city in northern BC with about 26,00 people, the CMHC vacancy rate is 4%, up from 1.5% the spring of 2014.
But, with an estimated 300 new rentals expected to complete this year, the vacancy rate is expected to be north of 5% this year.

CMHC pegs the average rent for a two-bedroom unit in Fort St. John at $1,111, with Vancouver just slightly higher at $1,345. The average rent for a
one-bedroom unit is $879, with bachelor suites reported at $751. The price for a three-bedroom-plus unit was at about $1,155. These prices were inline with
research we did on the local rental listings, but they do not appear excessive.

As for the low unemployment rate, it is skewed because so many of the people working in the northern gas industry are A: from out of the region and leave
when the job ends and are therefore not counted in employment stats and B: are contractors and sub contractors who don’t collect UIC and therefore don’t
show up on employment stats.

A contact that knows the area points out that many large pieces of equipment and stockpiles of pipe and other materials have been sitting idle for months.
“The wheels aren’t turning,” he said,

An informal poll taken of five local resource employers in January revealed that 950 workers were laid off; that number is now more than 2,000.

There are a number of reasons novice rental investors may want to take a close look before piling into the northeast B.C. rental market.

  • The cost of getting into the northeast market is fairly steep. The typical 3-bedroom detached house in Fort St. John sells for around $450,000 (you
    can find starters in the $350,000 range) and new 2 bedroom condos (many being bought for investors) are around $270,000. (Older 19970-era townhouses are
    $179,000). Investors can find similar condo prices in parts of the much more stable Lower Mainland.

  • Despite the Petronas decision, resistance by natives and environmental clearances could delay this and other planned LNG projects for years,
    especially of natural gas prices remain at their current low rates.

  • But the real kicker is ruling by Petronas last month that workers in its pipeline camps must live in work camps, not nearby towns like Dawson
    Creek, Fort St. James and Hudson Hope. Petronas owns Progress Energy which is active in the Montney Basin. Local landlords say the ruling
    has virtually emptied their rental buildings in Hudson Hope.

Encana, which has built a 1,200-person work camp near Dawson Creek also requires workers to live in camps, and it is believed the policy will extend to other gas
plays in the northeast.

As well, BC Hydro plans to build workcamps – and build its own rental buildings – for the $8 billion, 4,000-worker Site C dam project,
though it is only about five miles outside of Fort St. John.

To add a further wrinkle, Alberta modular builder Stack Modular, which has its own Chinese factory, says it can deliver luxury-level
modular apartment buildings, complete with all the furnishings, to any northern BC work site at half the cost and five times faster than local contractors.
It is already building 700 such units in Fox Creek, Alberta, a resource town north of Edmonton.

Major Point:
If you are sophisticated rental investors who can finance higher-end rental units with low-cost CMHC financing and can wait out seasonal and regulatory
delays that surround the northern BC resource economy, you will find long-term success n the northeast. If you are a smaller rental investors, you would be
better off buying a rental condo apartment in areas like New Westminster or East Burnaby, where the prices and rents are similar to the northeast, but
there is much larger pool of working tenants.

Average Vancouver House Makes More In A Month Than Most Residents Make In A Year

In the last month, the average price of house on the West Side of Vancouver went up by 2.5% from a month earlier to $2.54 million: this means that the
typical house made $66,274 in May, which is about $1,000 more than the average family income in the city earns in a year. In the past three months, the
same typical house has increased in value by more than $175,000.

On Vancouver’s East Side, the typical house has appreciated 18.4% since February, equal to earnings of nearly $180,000, based on current average values in
May just over $1 million. In May, the typical detached house price in Hastings East, the Fraser Street area or Renfrew Heights – not considered luxury
neighbourhoods – increased more than 3% or about $36,000.

In West Vancouver, the typical detached house price increased by $100,000 from April to May.

Is this sustainable?
We asked around and found that the official pundits – the BC Real Estate Association, CMHC and Central 1 Credit Union – were all on the same page, citing a lack of supply and high demand, what Helmut Pastrick chief
economist at Central 1 said was a “typical scenario for higher prices.” But when we got down on the street and talked to active Vancouver realtors, the
true magnitude and driving force of this housing boom became apparent. And it is nothing but typical, in fact it is unprecedented in Canadian history.

One realtor told of eight bidders for an East Vancouver house driving the $1.4million asking price up by $230,000 within hours. Another told of a mainland
Chinese buyer outbidding four others by $520,ooo on a Dunbar bungalow.

Neil Hamilton, a long-time West Side Vancouver realtor summed up what he sees happening: China-based capital is flooding into Vancouver. He notes that about 750
detached houses sold in May across the West Side, but there are literally tens of thousands of millionaires in China trying to get their money into safe
havens. “With China’s system of totalitarian capitalism, the country is producing about 100,000 new millionaires a year, “Hamilton said, “With so many
people able to get on a plane and come to Vancouver and buy real estate it is not hard to figure things out. As the planes land at YVR, so goes the West
Side and West Vancouver housing markets.”

According to realtors, the type or quality of the Vancouver house doesn’t matter any longer: it is the size of the lot, with 50-lots in highest demand
because the existing house can be bulldozed and replaced with a much larger one.

Major Point: The population of Guangzhou, China, is 44 million people. In Shanghai it is 28 million. If just one half of one per cent of the residents of just these
two cities decided to move to Vancouver, they would require at least 200,000 homes. But there are only 47,000 houses in the entire city. Perhaps Pastrick
is right: it is supply and demand and, for that reason, Vancouver house prices will continue to rocket.

Survey Hints That Recreation Uplift Is Coming

A survey by Re/Max, contained in its 2015 Recreational Property Report, shows that about 67% of Canadians covet a recreational cottage or
cabin and the figure is even higher in B.C.

The survey’s key findings include:

  • British Columbians love cottages: 68.9% would choose a long weekend at the cottage over a big city getaway
  • 20.8% would consider downsizing their main home to buy a cottage (compared to 21% of all Canadians)
  • In Whistler, chalets in the regions increased from a median price of $1,250,000 in 2014 to $1,315,000. An increase of 5.2%
  • The low Canadian dollar means Canada recreational buyers are choosing to stay in Canada where their dollar will go further. Two regions that
    benefitted from the low Canadian dollar but did not see an increase in foreign buyers are East Kootenays and Penticton

  • Foreign buyers are looking to take advantage of the low Canadian dollar are buying in Whistler and Comox Valley/Mt. Washington
  • There has been a significant increase in buyers who are planning to rent out their recreational properties part or full time. In B.C., regions that
    reported an increase include Ucluelet, Tofino and Penticton.

Major Point:
If the study is accurate, it is good news for B.C. recreational property owners, who have seen little price movement in eight years. If you are looking to
buy vacation property, as on a lake on the ocean, perhaps the best deals today are in Powell River on the northern Sunshine Coast
(four-bedroom quality
waterfront house on acreage for $749,000 MLS 10796) and near Pender Harbour (old timer cottage next to marina, $289,000 MLS
V1127426) and Sechelt on the lower Sunshine Coast.

US Homeownership Falling, Rent Demand Rising

The rate of homeonership in the United States has fallen to 64.5% and rental demand is soaring, according to a Harvard University study
“The State of the Nation’s Housing” released June 24.

Here is part of what the report states:

“The most telling indicator of the state of the nation’s housing is the drop in the homeownership rate to just 64.5 percent last year,” said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. “This erases nearly all of the increase from the
previous two decades. In fact, the number of homeowners fell for the eighth straight year, and the trend does not appear to be abating.”

The flip side of falling homeownership rates has been exceptionally strong demand for rental housing, with the 2010s on pace to be the strongest decade for
renter growth in history. While soaring demand is often attributed to the millennials’ preference to rent, households aged 45-64 in fact accounted for about twice the share of renter growth as households under the age of 35. Similarly,
households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters.

The other byproduct of this surge in rental demand is that the national vacancy rate fell to its lowest point in nearly 20 years. Given the limited supply
of rental units, rents rose at a 3.2% rate last year-twice the pace of overall inflation. “To meet this demand, construction started on more multifamily
units in 2014 than in any year since 1989,” says Daniel McCue, a senior research associate at the Joint Center. “And if job growth
continues to pick up, we could see even more demand, as young adults increasingly move out of their parents’ homes and into their own apartments.” For the
full report see: http://www.jchs.harvard.edu/state-nations-housing-2015-embargoed