Vancouver's real estate outlook isn't so sunny for sellers

A year ago, the outlook for sellers of residential real estate in the Vancouver area was optimistic, with industry experts foreseeing a continued upward trajectory of home prices after a year of near record-setting sales. The forecast for 2023 is not so cheerful.

Vancouver realtor Bryan Yan, who specializes in high-end properties, had predicted last year that prices for detached homes in 2022 would increase by 15 per cent and 10 per cent for condos. But there was a caveat. Those who increased were dependent on the Bank of Canada holding interest rates in check, a move that would throw cold water on the market. He says his prediction held true until the spring, but then inflation and the Bank’s big move on interest rates changed everything.

In March, the rate increases starting with a 0.25 per cent rise, and then the hikes come swift and strong – in total, seven overnight rate hikes. on Dec. 7, the Bank raised its benchmark rate to 4.25 per cent, the highest level since early 2008. There remains a lot of uncertainty about whether there will be another rise in the New Year.

The timing of the increases coincided with drops in MLS sales. The Real Estate Board of Greater Vancouver cited a sales-to-active-listings ratio in January 2022 of 40.3 per cent. By October, the ratio had fallen to 19.3 per cent. Prices don’t really start to drop until the sales-to-active-listings ratio goes below 12 per cent, but experts say prices have already moderated slightly, depending on the area.

The BC Real Estate Association released statistics in mid-December that show a 50.8 per cent drop in sales from November 2021, province-wide. That drop is especially sharp because of the super-hot market a year ago. BCREA recorded a 3.3 average price drop for Greater Vancouver, and a large 17 per cent drop for the Fraser Valley. Chilliwack had the biggest drop at 18.6 per cent and Victoria prices fell 7.7 per cent. The average Multiple Listing Service price in BC has dropped 8.6 per cent compared to November 2021.

BCREA chief economist Brendon Ogmundson noted the drastic change from this time last year, with mortgage rates that have more than doubled affecting sales.

Mr. Yan now predicts a 10 to 15 per cent dip for overall home prices in the Lower Mainland in the year ahead. He forecasts a condo price drop of 15 to 20 per cent, and presales about the same. He attributes that partly due to the federal government’s upcoming ban on non-Canadian real estate purchases, beginning in January. The prohibition prohibits foreign buying for two years.

“If you think about a ban on foreign buyers, prices will come down like crazy.”

Luxury real estate agent Faith Wilson said she’s heard people predict that prices will fall by as much as 25 per cent, but she thinks overall it will be far closer to 10 per cent.

“It’s going to be interesting,” she says. “It feels like you are in a new world, and you are waiting for new data on how the market will play out. We had that interest rate hike and we may not get one in February, but that being said, it’s tougher for people to get mortgages. Prices will moderate down a bit.

“The thing I do know is we never know until we are in the market, and what other stresses there will be. COVID proved that.”

But these adjustments will only matter to those who want to sell, she adds.

“The ones that bought in the last couple of years aren’t caring too much. Once you are in the market, you don’t want to move.”

Marketer Bob Rennie’s team released a report in November that said a stagnant fall has set the region up for a slowdown not seen in a decade.

“We feel certain that our current market dynamics will prevail into early 2023, at the very least,” said the report, prepared by economist Ryan Berlin and analyst Ryan Wyse.

Based on MLS information, sales fell 36 per cent below the 10-year October average and 48 per cent below October 2021. Usually, the period between September and October sees an increase in sales, said the report.

Mr. Rennie cites a need for more housing that is in the mid-range, priced at under $1.5 million. If that still sounds unaffordable, he cautions that there is an inter-generational transfer of wealth that plays an increasing role in the market. He found that homeowners over age 55 own more than $300-billion of clear-title housing in the region. Sixteen years ago, they owned $66-billion. Their Millennial and Gen-X children will inherit that purchasing power, which will put pressure on the lower end of the market.

“Nobody pays attention to the fact that 80 per cent of sales are under $1.5-million on the MLS. That’s where everybody is buying. We talk a
bout how we’re the most expensive market and everything, but only 10 per cent of sales are over $2-million. We have to create supply where the heavy demand is.”

He predicts that properties under $1.5-million will only come down in price about 5 per cent, and high-end properties over $5-million about 10 per cent.

“The high end of the market isn’t threatened; anything over $5-million. And who gives a poop. It has nothing to do with local incomes.

“For 20 years we have tried to point out that we shouldn’t be talking about Ferraris when we are talking about Buicks.”

Another 2022 trend was the intense increase in rents, particularly for newer units.

Last year in the West End of Vancouver, Great West Life Realty Advisors ended up renting units in their new Chronicle rental building on Robson Street for much higher than the $4.95 per square foot they’d predicted. Mr. Rennie marketed a high-end apartment building and spoke at its launch party a year ago. At the party, he predicted rents could go to $6 per foot, and he was correct.

“GWL ended up achieving $5.72 per foot, so that was a financial homerun,” says Mr. Rennie. “But now everybody building a new supply, given interest rates and construction costs, has to achieve $5.50-plus per square foot. And at $6 in the upper half of the building, that is $3,000 a month for a 500 square foot apartment. None of this is commensurate with local incomes.

“The problem is, we have never married jobs to housing. That’s single-handedly why head offices don’t move here, because of the cost and proximity of housing that matches incomes.”

Instead, local income earners will increasingly look to the region rather than the city, he said.