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 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
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 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.
*information taken from the Real Estate Board of Greater Vancouver