BCREA forecasts by 2023, Housing sales will plunge by 30 per cent in the Suburbs of Metro Vancouver this year and prices will “flatline”.
Home sales across BC will plunge 22 per cent this year and price “corrections” are becoming common| Chung Chow
Housing sales in the Fraser Valley will fall more than 30 per cent this year – most in the province – compared to 2021 and Valley price increases will flatline by 2023, according to the BC Real Estate Association (BCREA).
The average price forecast may prove optimistic. Recent listings show price reductions ranging from $10,000 to $300,000 on more than 300 Fraser Valley condos, townhomes and detached houses.
No area of British Columbia will be immune to the sales downturn and price corrections, according to the BCREA’s 2022 Second Quarter Housing Forecast, released May 31.Multiple Listing Service residential sales in the province are forecast to decline 22 per cent from a record high 2021 to 97,240 units this year. In 2023, MLS residential sales are forecast to fall an additional 12.4 per cent to 85,150 units, the forecasts states.
“After a strong first quarter, BC markets are now adjusting to a much different interest rate environment,” said BCREA chief economist Brendon Ogmundson. “With mortgage rates surpassing 4 per cent for the first time in over a decade, the housing market over the next two years may have very little resemblance to the housing market of the past year.”
BCREA anticipates “that prices may be somewhat volatile but will ultimately flatten out through 2023.”
The biggest sales declines this year are forecast in the Fraser Valley, down 30.3 per cent from a year earlier, and Chilliwack, with a 27.1 per cent decline. Greater Vancouver housing sales will drop 22 per cent in 2022 from a year earlier, which matches the sales forecast for the province, according to the BCREA.
The BCREA predicts that home prices will increase 11.5 per cent this year compared to 2021, but that now appears optimistic based on recent listings information, particularly in the Lower Mainland.
Housing markets across the Lower Mainland-Southwest region of BC carried strong momentum from the end of 2021 into this year, with first-quarter sales only slightly off last year’s record. However, rapidly rising interest rates and increasingly challenging affordability have prompted a transition in the market and sales activity has recently returned to more normal levels.
The BC economy posted its strongest growth in close to 40 years in 2021, expanding at 6.2 per cent in real (inflation-adjusted) terms. The provincial unemployment rate has returned to its pre-pandemic level and the economy is set for another year of strong growth.
That said, headwinds from rising interest rates will significantly impact market activity over the next year and a half.
The Bank of Canada has signalled an aggressive rate tightening cycle that will have its overnight policy rate potentially rising to between 2 and 2.5 per cent by the end of this year. As a result, five-year fixed mortgage rates have jumped, rising above 4 per cent for the first time in a decade.
The Bank of Canada increased its key interest rate by 50 basis points on June 1, 2022, bringing the central bank’s policy rate to 1.50%. This half a percentage point hike follows up on the Bank’s April 2022 rate hike announcement of 50 basis points, which was the largest individual rate hike since 2000.
Most analysts now expect the Bank of Canada to increase its key overnight lending rate with consecutive rate hikes of 50 basis points on July 1st.
The Royal Bank of Canada is forecasting that B.C. will see the largest price reductions in Canada next year, due to rising interest rates.
That increase means that homebuyers will now have to qualify for a mortgage at a rate of over 6 per cent, well above the peak qualifying rate from the 2018-2019 period which saw a significant downtrend in home sales.
After a record-setting 2021, we forecast home sales recorded on the MLS® system in the Greater Vancouver real estate board area will finish the year at 35,000 units before moderating to 30,000 units in 2023 as the full impact of higher mortgage rates is felt. Similarly, we expect home sales in the Fraser Valley board area to fall to 18,500 units this year and 17,000 in 2023.
In the Chilliwack board area, we expect sales will fall to 3,500 this year and 2,900 next year. As sales activity declines, the inventory of active listings will begin normalizing. Indeed, this is already occurring, though at a faster pace in the Fraser Valley than in other Lower Mainland markets. That said, because listings fell to such low levels, it will still take up to a year or more for active listings to return to a balanced market range.
As markets begin to balance out, home prices in the Lower Mainland will likely hold on to gains made over the pandemic but will flatten out in the second half of this year and into 2023. Even with price growth slowing substantially, average prices in the Greater Vancouver board area are forecast to be up about 8 per cent this year, up 13 per cent in the Fraser Valley and up 16.4 per cent in Chilliwack.
Sources: BCREA, Western Investor
Geoff Jarman has been a REALTOR® for the past 31 years and has experienced other flat-lined markets.
If you are considering selling or buying a property and need advice from a trusted real estate expert, please contact Geoff or call him at 604-313-7280