"Cracks in the foundation": Slow BC home sales putting pressure on rental market

The factors that drove “unprecedented demand” in the BC housing market are “unwinding,” according to a new report from the BC Real Estate Association (BCREA), prompting them to forecast that suggests the market will remain slow moving into next year.

Those factors include record low mortgage rates, buyer preference for extra space, and remote work opportunities.

Low mortgage rates have seen a stunning reversal since the pandemic began, and the BCREA says five-year fixed mortgage rates have increased over 300 basis points since the beginning of the year to nearly 5.5%. This is the highest mortgage rates have been since back in 2007.

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Due to buyers being “forced to the sidelines” by high qualifying rates, the BCREA suggests that the rental market is feeling the pressure, saying that “rents are rising at double-digit rates in most cities.”

BCREA

The BCREA forecasts that 2022 will end with 82,345 units sold. It expects that number to fall by another 11% next year to 72,960 units, pointing to higher interest rates and a “difficult 2023 ahead for the Canadian economy” as primary factors. However, the slow sales have had one positive effect; an increase in inventory, though BCREA points out, that is borne from record lows.

BCREA

BCREA suggests that BC was once thought to be on a path of prosperity that could’ve lasted several years, but now that “has been knocked off course.”

Home sales in BC are trending around 30% below average.

“Price levels have fallen from their peak earlier this year, so even flat prices from current levels will translate to the provincial average price being down about 5% in 2023.”

The BCREA goes so far as to say, as other financial analysts have, that a mild recession could impact Canada next year, though it is not inevitable.

“While economic growth in BC in 2022 remains strong, we are seeing cracks in the foundation, especially in interest rate-sensitive sectors like the housing market. Because of aggressive monetary tightening, Canadian mortgage rates are now close to 5.5% for the first time in more than a decade, and qualifying for a mortgage now requires clearing a stress test rate at nearly 7.5%.”

BCREA