BC real estate market not expected to recover until 2024

Jan 5 2023, 7:56 pm

The depressed housing market trends that emerged in 2022 will continue into 2023 and a recovery is not expected until next year.

According to a new housing market forecast by Central 1, high interest rates are still having a downward effect on housing demand in British Columbia. Slower growth in the economy, higher debt loads, and inflation will continue to reduce the purchasing power of prospective homebuyers.

Home prices are expected to further drop through the first half of 2023, before stabilizing in the middle of the year from the expected easing of mortgage rates and record-breaking immigration. Employment levels will weaken from the economic slowdown, but remain relatively strong as a result from a slowdown in hiring rather than significant job cuts. BC’s unemployment rate is currently hovering at 4%.

Based on land title transfers, the number of housing resales will fall by 10% in 2023, following a 28% drop in 2022.

The correction is particularly pronounced in the Fraser Valley, where substantial home price gains earlier in the pandemic have largely been erased, returning to levels earlier in 2020. The Fraser Valley’s ascent was driven by low interest rates, comparably lower prices to Metro Vancouver, and the emergence of remote work.

Sales are forecast to increase by 10.7% in 2024 and 12.5% in 2025 from stronger demand, with urban areas expected to lead recovery due to higher immigration. Overall home prices are expected to see a downward trend toward 2020 levels.

“Despite the drag from mortgage rates, a tight labour market and immigration are still supportive of demand. Population growth has surged and is expected to remain well above
average over the coming years and drive both homeownership and rental market demand. Pent-up demand will propel activity once interest rates descend,” wrote Bryan Yu, the chief economist of Central 1, in a statement.

After seven hikes to interest rates in 2022, it is believed the Bank of Canada’s interventionist measure to curb inflation and home prices is near its peak if it has not already reached the ceiling. Interest rate cuts are expected by 2024.

When it comes to housing starts, the act of starting the construction process of new housing, new construction is anticipated to decline from falling demand, home values, and high mortgage rates. Higher interest rates will also make it more financially challenging to build new rental housing.

With homeownership now out of reach to a larger segment of residents, this is expected to put further pressure on rental housing, reducing the turnover of renters and driving up rents. Rents are expected to grow by at least 6% in 2023, with similar growth in 2024 and 2025.

“Rental growth restrictions, while beneficial for existing tenants, create challenges to mobility for families given the degree of turnover rents, while disincentivizing new construction and expanded rental supply,” reads the report.

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