With listing activity remaining below historical norms, home sales in Metro Vancouver have mounted a surprising comeback, rising near levels seen last spring, before eight consecutive interest rate hikes eroded borrowing power and brought home sales activity down along with it. 

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,741 in April 2023, a 16.5 per cent decrease from the 3,281 sales recorded in April 2022, and 15.6 per cent below the 10-year seasonal average (3,249). 

“The fact we are seeing prices rising and sales rebounding this spring tells us home buyers are returning with confidence after a challenging year for our market, with mortgage rates roughly doubling,” Lis said. “The latest MLS HPI® data show home prices have increased about five per cent year-to-date, which already outpaces our forecast of one to two per cent by year-end. The year is far from over, however, and it remains to be seen if these price increases will be sustained into 2024.” 

Home prices across Metro Vancouver’s housing market showed modest increases in March, while new listings remained below long-term historical averages.  

March data also indicates home sales are making a stronger than expected spring showing so far, despite elevated borrowing costs. 

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,5352 in March 2023, a 42.5 per cent decrease from the 4,405 sales recorded in March 2022, and 28.4 per cent below the 10-year seasonal average (3,540). 

“On the pricing side, the spring market is already on track to outpace our 2023 forecast, which anticipated modest price increases of about one to two per cent across all product types,” Andrew Lis, REBGV’s director of economics and data analytics said. “The surprising part of this recent activity is that these price increases are occurring against a backdrop of elevated borrowing costs, below-average sales, and new listing activity that continues to suggest that sellers are awaiting more favorable market conditions.” 

Gnocchi Primavera

INGREDIENTS

• Kosher salt
• 1 - 17.5 oz package of gnocchi
• 3 tbsp extra-virgin olive oil
• 1 leek (cut into 2 inch pieces)
• 8 oz sugar snap peas
• 8 small radishes, trimmed and quartered
• Freshly ground pepper
• 2 tbsp unsalted butter
• 1/4 cup grated parmesan
• 1 tsp finely grated lemon zest
• 1 tbsp finely chopped parsley

Sales in 2023 to remain similar to 2022

Metro Vancouver home sales set or neared historic records in 2021 and 2022 on both ends of the spectrum. Sales activity hit a record high in March of 2021 and closed 2022 near historic lows after accounting for typical seasonal variation.

The key economic variable most responsible for this oscillation between extremes has been the spike in mortgage rates, as a result of the Bank of Canada rapidly raising the policy interest rate to quell inflationary pressures not seen in the country in more than thirty years.

Sales Forecast

Sales across Metro Vancouver are expected to reach approximately 28,500 in 2023. This represents a 2.6 per cent decrease over the 29,261 sales in 2022.

Home price forecasts

The average price across all product types for the REBGV area is forecast to reach approximately $1.2 million in 2023, which represents a 1.4 per cent increase over 2022. Prices for apartments, attached, and detached homes are projected to increase in price by approximately one to two per cent.

Risk of economic stagnation and higher mortgage rates

Related to the risk of an economic recession alone, is the risk of economic stagnation (or recession) paired with a continued increase in interest and mortgage rates.

Among the most difcult scenarios central banks can find themselves in is one economists term “stagflation”. This is a scenario where an economy is barely growing or is in recession, usually resulting in high unemployment, coupled with high inflation. In such a scenario, attempts of a central bank to rectify one situation can lead to exacerbating the other.

For example, a central bank choosing to increase the policy rate to fight inflation during a recession could lead to even greater unemployment. Conversely, lowering the policy rate to stimulate the economy while inflation remains elevated could lead to even higher inflation. It is a vexing problem, and no easy solutions exist. Ultimately, policymakers must make dificult choices between exacerbating inflation by trying to stimulate the economy or pushing up unemployment by trying to reign in inflation.

At the time of publication, this situation is fortunately not currently the case. However, given that inflation remains persistently elevated and other economic indicators (e.g., yield curve inversion, etc.) suggest economic trouble may be on the horizon, this potential scenario represents a reasonably foreseeable risk.

Summary of downside and upside risks

Downside risks

With regard to the foregoing, downside risks to the forecasts are at least twofold:

1. Sales could slow more significantly than forecast if the economy stalls and heads into a recession.

2. Valuations could be lower than forecast if the recession is accompanied by significant job losses, and persistently high (or rising) inflation, leading to even higher costs of borrowing

Upside risks

Upside risks to the forecasts are:

1. Sales activity and valuations could be higher than forecast if a recession is avoided and inflation declines more rapidly than expected, leading to meaningful reductions in the cost of borrowing.

The Home Buyer Rescission Period, or 'cooling off period' was introduced Jan 3, 2023 across BC.

The new option gives buyers the right to rescind their offer up to three (3) clear business days after the offer is accepted (beginning at 12:00 am midnight the day after the accepted date, weekends and holidays are excluded). Business days, and holidays excluded.

If a buyer changes their mind, they must pay a 0.25% rescission fee (0.25% of the accepted offer price) to the seller within 14 days if the rescission is exercised.

The policy will apply to the following types of structures:

• detached homes
• semi-detached homes
• townhouses
• apartments
• residential strata lots
• manufactured homes affixed