BC home sales forecast to drop by 21% in 2022 from waning pandemic

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Home sales in British Columbia will continue following an upward trajectory over the short term, rising by 37% year-over-year to 113,000 units in 2021, maintaining seller’s market conditions.

But this trend is deemed unsustainable, with market conditions closer to normal expected to return in the second half this year, according to the latest forecast by Central 1.

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This downward trend will continue in 2022 with a 21% contraction to 89,000 units, which would still be above the 77,400 units in 2018 and 70,600 units in 2019, but above the forecast of 85,800 units in 2023.

Sales volumes are now at a record pace of 14,000 units per month, exceeding the previous cycle high in 2016.

Record low interest rates and changing living preferences are often cited as reasons for the hot market conditions, but Central 1 chief economist Bryan Yu adds the pandemic’s uneven economic impact as a reason as well.

“People working in higher paid sectors of the economy have been able to amass savings for a down payment while working from home and adhering to travel and lifestyle restrictions,” he wrote.

“In addition, a greater share of the population consists of millennials who are at an age associated with home ownership and growing families, thereby pulling forward purchasing activity by a number of years.”

Foreign buyers are not seen as a driving source of the demand, with data suggesting this group was about 1.5% during the pandemic, which is lower than usual.

The flood of demand has outpaced supply, with median resale prices increasing by 10% to $643,000 in 2021, 4.2% to $670,000 in 2022, and 3% to $690,000 in 2023. The average MLS price across BC surged to a seasonally-adjusted $915,464 — an increase of 20% from a year ago.

“Inventory is generally plumbing the lowest levels going back at least to 2000 across regions, while sales-to-active listings ratios are at or near record highs, supporting rapid price gains as buyers enter intense bidding wars,” wrote Yu.

Higher mortgage rates would effectively cool the market, but this is unlikely for reasons that include ongoing economic uncertainties, and the Bank of Canada’s policy rate anchored at current levels for the coming year.

“The lack of government intervention may reflect limited tools to temper the market given the surge in activity is driven by domestic buyers who have strong credit and are already subject to a mortgage stress tests,” he continued.

“The primary drivers of the current boom are low borrowing costs and a shift in household pandemic preferences. Both are outside the control of policy makers and are expected to naturally wane as the pandemic eases.”

Beyond 2021, sales volumes and price escalation, especially in detached properties away from urban areas, are expected to see a slowdown from widespread vaccinations dulling the allure of rural living. A hybrid model of work from home from the reopening of workplaces, coupled with households allocating more funds towards leisure services and tourism, will also contribute to slower activity.

As for housing starts, new construction is expected to reach 41,500 units in 2021, a 10% increase over the previous year. Due to weaker immigration levels during the pandemic, housing starts will remain constant through 2022 at 40,000 units, but they will increase to 45,000 units in 2023 when immigration restarts and increases housing demand.

According to Yu, “excessive undersupply across the province and long-term population growth will underpin housing market strength over the long term.”

For the rental housing market, vacancy rates are expected to decrease as the economy recovers and vaccinations pick up, and as post-secondary institutions resume in-person learning starting in Fall 2021. Vacancy rates will drop to 2.2% in 2021, and under 2% in 2022 and 2023, but rent growth will be limited from the provincial government’s rent freeze extended through the end of this year.

Turnovers and an increase in allowable rents are forecast to lift average rent to 3% in 2022 and 4% in 2023.

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