June Founder’s Message – Market Outlook Amid Rising Interest Rate Landscape
Interest rates are on the rise as Metro Vancouver begins to move towards a more balanced real estate market. For the past two years, the Lower Mainland has shattered sales and price records. Change is on the horizon, according to real estate analysts.
“After a strong first quarter, B.C. markets are now adjusting to a much different interest rate environment,” said British Columbia Real Estate Association (BCREA) chief economist Brendon Ogmundson. “With mortgage rates surpassing four percent 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.”
During the first year of the pandemic, interest rates fell to historical lows, causing an unprecedented surge in housing demand. All markets across B.C. saw significant price increases due to a low inventory of homes for sale.
More recently, inflation has reached multi-decade highs. And, as a result, the Bank of Canada is trying to bring inflation back down to two percent. That means interest rates are headed higher and consequently housing activity will slow in B.C., according to the BCREA’s 2022 Second Quarter Housing Forecast, released May 31, 2022. The BCREA is anticipating the Bank of Canada will raise its overnight rate to potentially between 2 and 2.5 percent by the end of 2023.
B.C. had a strong first quarter with home sales close to the record pace set in 2021. However, markets are now adjusting to a higher interest rate environment and home sales are expected to return to historically normal levels for the remainder of 2022. The BCREA predicts that sales will fall slightly below average levels of activity in 2023.
On the supply side, active listings are moving away from record lows and resale inventories are trending back towards balance, according to the recent report. With that said, the BCREA forecasts that it may take up to a year or more to return to a completely balanced market because inventories have been so low.
As markets adjust to an interest rate environment that we have not seen in more than a decade, the BCREA anticipates that “prices may be somewhat volatile but will ultimately flatten out in 2023.” They predict house prices in the Lower Mainland will likely hold onto the gains made over the pandemic but will flatten out in the second half of the year and into 2023. Average prices in the Greater Vancouver area are forecast to be up about 8 percent this year.
Multiple Listing Service (MLS) residential sales in the province are forecast to decline 22 percent from a record high in 2021 to 97,240 units this year. In 2023, MLS residential sales are predicted to fall an additional 12.4 percent. According to the BCREA, Greater Vancouver housing sales will drop 22 percent in 2022 from last year, which matches the sales forecast for the province.
As our province moves into a post-pandemic economy, analysts anticipate that growth through 2022 and much of 2023 will continue to be quite strong. Interest rate sensitive sectors of the economy, such as residential construction and the residential housing market, are expecting some slowdown. However, B.C. has significant capital projects underway, which are predicted to counterbalance the slowing in other areas of the economy.
Fixed mortgage rates now exceed four percent. Variable rates, which move in lock-step with the Bank of Canada, are also on the rise and could increase sharply if the central bank takes a more aggressive approach to get escalating inflation back to its two percent target.
Home sales typically flatten out in a rising interest rate environment. Currently, prices are still elevated. The composite benchmark price for all residential properties in Metro Vancouver is $1,261,100, a 14.7 percent increase from May 2021 and a 0.3% decrease compared to April 2022. With this in mind, now is a great time to receive a complimentary comparative market evaluation on your home. You may be pleasantly surprised to see what your home is currently worth. We invite you to call us to receive expert mortgage and real estate advice.
The Bank of Canada has already raised its benchmark interest rate three times this year. More hikes are expected before the end of 2022 in an effort to cool Canada’s overheated economy and slow the pace of consumer price growth.
Home sales typically flatten out in a rising interest rate environment. Currently, prices are still elevated. The composite benchmark price for all residential properties in Metro Vancouver is $1,261,100, a 14.7 percent increase from May 2021 and a 0.3% decrease compared to April 2022. With this in mind, now is a great time to receive a complimentary comparative market evaluation on your home. You may be pleasantly surprised to see what your home is currently worth. We invite you to call us to receive expert mortgage and real estate advice.
The Bank of Canada has already raised its benchmark interest rate three times this year. More hikes are expected before the end of 2022 in an effort to cool Canada’s overheated economy and slow the pace of consumer price growth.
The record-setting frenzy of the past two years is subsiding, and we are starting to experience a calmer environment. Allow us to help empower you to make the best decisions possible. Our highly experienced advisors understand both local and global markets and are here to help you reach your real estate goals.