BC housing market on 2024 rebound trajectory: forecast
A new forecast update on British Columbia’s housing market in reaction to the Bank of Canada’s latest surprising hikes in the policy interest rate projects a rebound in activity starting in 2024.
According to Central 1 Economics, home sales volumes are expected to drop nearly 5% in 2023, which is a shallower drop than the 35% decline in 2022, before seeing gains of 12% in 2024 and 14% in 2025.
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The average home price in BC is expected to drop by 2.7% to $970,000 in 2023, followed by increases of 0.5% in 2024 and 3.6% in 2025, returning to above the $1 million mark.
“We do not see a path to a return to pre-pandemic home prices, and buyers should expect elevated values to be the norm,” said Bryan Yu, the chief economist and assistant vice president of Central 1.
“The latest round of interest rate hikes will push more prospective buyers out of the market but robust population growth means plenty of demand is waiting on the sidelines. Any price or rate declines is likely to draw more buyers in. We largely expect the current environment to support a high price, low sales environment through the end of 2023, before easing rates lift sales higher in 2024.”
There was renewed momentum in housing activity in the first half of 2023 in response to the Bank of Canada’s earlier decision to pause policy interest rate hikes, but that is now expected to wane for the remainder of the year.
But according to the report, demand is expected to be relatively strong all things considered, even at elevated prices, with millennial and Gen Z households looking to buy their first homes, and the growing population from continued record-high international immigration levels. Any price declines in the foreseeable future are likely to draw in buyers.
“Consumers will be pinched by higher mortgage payment outlays and softening wage growth. That said, early year economic resilience, a tight labour market and elevated level of population growth means the BC and Canadian economies avert a recession of any significance,” reads the report.
“We expect the national economy to grow above 1% this year with a similar pace next year. BC’s slowdown will be more pronounced given higher household debt and greater sensitivity to higher interest rates, but the provincial economy is expected to rebound at a more robust pace.”
Home prices also remain high due to limited supply. There have been a recorded surge in multi-family unit construction from condominium and secured rental housing projects planned years in advance, but surging construction financing and building costs are expected to blunt the ability to pick up the pace with much-needed new supply.
With homeownership increasingly out of reach, even more households are turning to the already highly constrained rental housing supply.
BC’s average vacancy rate for secured rental homes reached 1.3% at the end of 2022 and is expected to dip even lower from immigration volumes. This vacancy rate is projected to dip below 1% in 2023, and remain exceptionally low through 2025. Average rents will go up by 7% in 2023, 5% in 2024, and 6% in 2025.
Condominium apartment vacancy rates are also exceptionally low in larger markets. A forthcoming slowdown in new condominium construction is also expected to narrow vacancies even further, while sending rents upwards.