Housing downturn definitely underway in Metro Vancouver, Fraser Valley

Housing downturn definitely underway in Metro Vancouver and Fraser Valley

Metrotown skyline in Burnaby. (Shutterstock)

A downturn of the Lower Mainland’s housing market is now in “full swing” with not only home sales volumes and prices seeing a very clear downward trend, but building permits are now also sharply declining.

Based on analyzing the newly released data from the Real Estate Board of Greater Vancouver (REBGV) and the Fraser Valley Real Estate Board (FVREB), Central 1 chief economist Bryan Yu says the local housing market has entered a correction phase.

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In fact, May 2022 saw the third-fewest same-month units sold since 2011, only behind the hard-hit pandemic year of 2020 and the slightly lower volumes in May 2019. On a seasonally-adjusted basis, there was a 15% sales drop last month, adding to the consecutive similar drop in April.

“The rapid decline reflects sharply higher borrowing costs and the expiration of pre-approved rate commitments. Five-year fixed rates have surged above 4% and variable rates moved higher on Bank of Canada rate hikes,” reads Central 1’s new market update.

“Affordability has been decimated as prospective buyers internalize both the highest fixed rates in a decade and home prices which have surged 40% over two years. This has priced buyers out of the market while others are understandably nervous about market conditions and the risks of price declines after the recent run-up.”

FVREB’s jurisdiction, which includes much of Metro Vancouver such as Surrey and Delta, experienced a much deeper retraction in May 2022, compared to REBGV.

At the same time, a growing number of new listings is allowing the market to rebalance itself, following the previous lows in recent years due to high demand. The sales-to-active-listings ratio falling to 26% represents the lowest ratio since the middle of 2020 and is approaching the balanced market range.

Home values have also declined for the third consecutive month, although condominium prices were steady. Yu believes affordability issues are pushing prospective buyers to pursue lower-cost homes, compared to the higher cost of single-family detached and townhouse units.

With even higher interest rates to come and no end in sight to rampant inflation, developers are increasingly holding back on starting new construction, with the expectation that these factors will prompt residents and businesses to become more prudent and budget-conscious.

“Inflationary pressures are also affecting the supply of labour and more and more workers are demanding higher wages. Businesses understand this and over half know that inflation will be a central issue of wage discussions with employees over the next year,” reads the update.

“To combat some of these increased costs, businesses may need to take on more debt… [but] fewer than half of the businesses are able to do so. The pandemic dwindled contingency funds significantly and many businesses already have significant debt on the books. Taking on new debt, therefore, becomes more difficult, particularly as borrowing costs are now climbing during a monetary tightening phase aimed at controlling inflation.”

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