There’s no question that the real estate market in British Columbia has been white-hot over the last year. Since the pandemic began in March 2020, we’ve seen significant year-over-year increases in sales and home prices across the province. The province has now entered phase three of BC’s Restart Plan, as an increasing percentage of the population has been vaccinated, and fewer individuals are testing positive for COVID-19. If case numbers and hospitalizations continue to decline, BC should enter phase four around September 7, 2021.
With such rapid changes taking place, there are dozens of trends to watch that could affect BC’s real estate market. COVID-19 changed the real estate landscape in BC, and its departure will continue to impact the market. Here are eight real estate trends you should be watching closely as BC reopens.
1. The Impact of Rising Interest Rates
When the pandemic began, the Bank of Canada brought interest rates to all-time lows to soften the impact of job losses and a slowing economy. Rates have remained at 0.25 percent throughout the last year.
Benjamin Tal, the Deputy Chief Economist at CIBC, says that the sensitivity to higher interest rates is “the number one issue facing the Canadian economy.” Though the US Federal Reserve has indicated that they won’t touch interest rates until 2023, Tal believes that Canada could move quicker. As interest rates in Canada return to pre-pandemic levels, it’s expected that home price growth could slow.
2. Easing Sales Numbers
Sales volumes are running at record highs right now, with 14,000 units per month exceeding the previous highs in 2016. Demand has simply outpaced supply, and because of this, units are not staying on the market for long very long - it’s not been uncommon for homes to sell in a weekend in Greater Vancouver.
It’s hard to predict when sales numbers will begin to ease, but the Canadian Real Estate Association (CREA) is forecasting housing activity to ease over the second half of 2021 and into 2022. The association says that sales declines are forecasted to be the largest in BC and Ontario.
3. Implications of the Revised Mortgage Stress Test
Given the hot housing market, new rules have been introduced in an attempt to cool things off. The real question to ask is, will it work? The revised mortgage stress test is just this kind of rule, intended to cool off a hot market by forcing homebuyers to qualify for a mortgage at nearly twice the current posted rates. As of June 1, 2021, the minimum qualifying rate for both insured and uninsured mortgages is the rate offered by your lender plus 2%, or 5.25%, whichever is higher.
Overall, the revised mortgage stress test has been said to reduce home seekers buying power by as much as 4%. For those currently trying to enter the market, the new rules could make entering even more challenging.
4. Sales to Active Listings
Analyzing sales to active listings is one of the best ways to measure supply and demand and determine whether or not we’re currently in a seller’s market or a buyer’s market. Currently, sales to active listings ratios are near all-time highs in most of the province, particularly in Greater Vancouver. June’s sales to active listings ratio was 34.7% in Greater Vancouver, down from 39% in May. That’s still a strong indication of a seller’s market, which is typically defined as any market where the sales to active listings ratio is greater than 20%.
To see a buyer’s market where prices typically decline, the sales to active listings ratio would have to fall below 12%. We’re still far off from that number, but it’s worth watching to see if the ratio continues to dip lower.
5. Month-Over-Month New Listings
Another important trend to monitor that’s moving slightly downward is month-over-month new listings. Here’s a look at the numbers for new listings in Metro Vancouver from April, May, and June.
April: 7,938 detached, attached, and apartment properties newly listed for sale in Metro Vancouver
May: 7,125 detached, attached, and apartment properties newly listed for sale in Metro Vancouver
June: 5,849 detached, attached, and apartment properties newly listed for sale in Metro Vancouver.
Many have called for more supply to meet demand in Metro Vancouver, but with fewer homes being listed, it’s hard to imagine things getting much easier for buyers anytime soon.
6. MLS HPI Benchmark Price
The MLS Home Price Index provides information about benchmark home prices across the province, including price information on townhomes, apartments, and detached homes. You can view benchmark prices in individual cities or regions as well, which is a great way to spot trends as BC reopens. Month over month, things are still slowly creeping upward as prices reach all-time highs in many communities throughout the province. For a high-level look at the market, MLS HPI Benchmark Prices are great to follow.
7. Office Vacancy Rates
Canadian commercial real estate was hit hard during the pandemic, but things are looking up - or at least better. A new report from CBRE suggests that the pace of office vacancy increases is finally easing, while at the same time industrial demand is reaching unprecedented levels. Vancouver’s industrial availability rate is just 1.1%, and with rapidly limited land and rising costs, CBRE believes that Vancouver will be out of industrial space in just six months.
As more workers return to major city centers, expect downward pressure on office vacancy rates in the not-so-distant future.
8. Shifts in Household Preferences
Perhaps the most interesting trend to follow as BC reopens is whether household preferences return to match pre-pandemic interests. Many policymakers believe that preferences driven by the pandemic will naturally wane, while others feel that the new dynamic is here to stay.
As some return to work while others continue to work from home, we’ll no doubt see shifts. The pandemic pushed many individuals further from the city in a quest for more affordable and more spacious housing options. Time will tell whether these preferences will continue to shape the market as BC reopens.
Original Article by Justin Kerby