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5 Factors That Will Impact the Vancouver Real Estate Market

Posted on January 27, 2023 by Manny Grewal

The biggest driving force for the Vancouver Real Estate Market in 2022 was rising mortgage rates. These rising rates led to a drop in affordability, forcing many buyers to the sidelines.

For those that could still afford to buy the uncertainty of how much rates could rise by and how much prices could potentially drop by led them to put their buying plans on hold and move to the sidelines as well.

As a result, sales plummeted and prices dropped considerably for some areas and property types, and moderately for others.

So what can we expect in 2023?

Should buyers continue to wait or should they move forward?

In this market report, I'm going to answer these questions and share five factors that will have a big impact on the Vancouver Real Estate Market going forward.

Factor One: Mortgage Rates Stabilizing

Throughout 2022 the Bank of Canada raised their overnight rate at a record setting pace to battle inflation. These rising rates dominated the news headlines, leading many people to assume that all mortgage rates were also rising at the same pace.

But that was not the case.

During that time, the variable rate increased by 4.25%, while the fixed rate only increased by a little bit over 2%. The reason why the variable rate and the fixed rate did not rise at the same pace is because only the variable rate moves up and down with the overnight rate, while the fixed rate moves up and down with government bond yields.

Also, the variable rate continued to rise throughout 2022, while the fixed rate stopped rising in the fall and has actually come down a little since then.

I'll talk more about the fixed rate in a minute, but for now, let's get back to the overnight rate.

The Bank of Canada recently made a big announcement stating that they would be putting the overnight rate hikes on hold because their plan to reduce inflation is working.¹

What impact will this have on the real estate market?

The latest announcement will provide stability for the variable and the overnight rates and will help ease the uncertainty that was keeping many buyers out of the real estate market. This recent development, along with a lowered fixed rate, should help increase the activity as buyers that were waiting on the sidelines reenter the market.

Factor Two: Price Stability

The Vancouver Real Estate Market absorbed the drop in mortgage affordability throughout 2022. Sale prices declined from their peak and started to stabilize for the most part in late fall.

The reason why prices started stabilizing in the fall is because many buyers decided to go with the fixed rate mortgage throughout 2022 and the fixed rate stopped rising in the fall.

Many people didn't realize this because most of the focus was on the variable rate. But now that the variable rate should remain stable, the common consensus will be that prices should also remain stable.

What impact will this have on the real estate market?

Since perception can be reality, the buyers that didn't realize that prices were starting to stabilize in the fall will likely move forward now, leading to an increase in activity.

Factor Three: Iventory

When it comes to inventory, there are three things that I want to point out.

One, in the latest news headlines, they talked about how inventory was up 32% compared to last year.² But what you need to understand is this is based on the total of 17 different cities that are covered by the Real Estate Board of Greater Vancouver.

When it came to the City of Vancouver, inventory was actually down 2% compared to last year.

Two, the current inventory levels are the second lowest compared to the last three times we had a major downturn in the Vancouver Real Estate Market in 2008, 2016 and 2018.

And three, we have a lot of overpriced properties on the market.

I'll share an example to illustrate my point using older detached homes in the Hastings Sunrise neighbourhood.

3454 Pandora Street, sold for 1,475,000 on September 27, 2022. This sale price was within the market value range for that type of a home at that time.

There was another similar home that just sold in January that also sold within that same market value range. This shows support for how prices have remained stable since fall.

But when we take a look at the current inventory of similar homes in the area, you can see that they're all overpriced.

So not only do we have limited inventory, which is a common theme in the City of Vancouver, but plenty of that limited inventory is overpriced.

What impact will this have on the real estate market?

If we continue to have limited inventory, the increase in activity that we may see due to mortgage rate stabilizing and prices stabilizing may lead to an increase in competition.

Now, I know that the NDP has brought in the Housing Supply Act and have a very ambitious plan for increasing the housing supply. I fully support the plan and I'm not questioning the genuineness of it, but I do have my doubts about its effectiveness and its execution.

Factor Four: Immigration

To help address major labour shortages across the country, the federal government has elevated their annual immigration targets over the coming years.³ Based on these targets, 2 million new permanent residents will be welcomed between 2022 through 2025.

That's a staggering increase from the already record setting 1.3 million that were brought in between 2016 to 2021.⁴

Why are the targets so aggressive?

Let's take a look at an eye opening stat. According to Stats Canada, in 1966, the number of people working compared to the number of people retired was almost eight to one. That ratio has been dropping quickly since and is expected to be at around three to one by 2027.⁵

So what impact will these targets have on the real estate market?

Although many new immigrants may not be able to afford to buy a home right away, the ones who have already been here for a number of years have held steady jobs and were able to save will continuously enter the real estate market.

Also, since the long term goal of the current immigration plan is economic growth, around 60% of all new residents will be brought in based on specialized skills and qualifications.⁶

The path to buying a home will be much shorter for these skilled additions. If the NDP are not able to execute their plan of increasing the housing supply in time, which I am very doubtful of, we could see an increase in demand and competition.

Factor Five: Tougher Mortgage Qualification Rules

The Office of Superintendent of Financial Institutions, is making three new rule proposals that will make it even harder for borrowers to qualify for a mortgage.⁷ The proposals will be open for comment until April 14.

Although it's not clear if all three proposals will be adopted but once they are approved, they could be introduced as early as this year. I won't dive into the details of each one of these proposals, but I will provide a link below where you can get more information.

What impact will this have on the real estate market?

These new rules would reduce the amount of mortgage that some buyers can qualify for and potentially price them out of their preferred properties. Prior to these rules being introduced, we could see an increase in activity as these buyers rush to get into the market, which could lead to increased competition.

Should Buyers Continue to Wait or Move Forward?

All of the factors that I've brought up here will essentially lead to an increase in activity, demand and competition.

Our advice to buyers would be to move forward now to get ahead of that potential competition.

Also, prices have come down from their peak creating some really good opportunities. But please keep in mind that "good opportunities" is a relative term.

When it comes to the real estate market in the City of Vancouver, a good opportunity doesn't get any better than being able to buy at market value without having to compete with too many buyers during a time when the market is down.

Since inventory is limited for certain neighbourhoods and property types, those good opportunities may also be limited. This could lead to some upward pressure on pricing due to increased demand and competition.

This is why it's essential for buyers to act quickly and take a close look at the inventory for their preferred property type and neighbourhoods.

Be Market Wise. Monitor What Matters so that you can Make Informed Decisions.

If you're thinking about buying but don't know where to start, please click on the here to get tips on how to save time and money and how to identify good buying opportunities.

If you're thinking about selling and don't know where to start, please click here to get tips on how to save time and money and how to maximize the sale price of your home.

Or if you prefer, you can call, text, or email us. We promise to provide an informative, pressure-free conversation.

Thanks for watching and have a great day.

Sources:

1. Global News

https://globalnews.ca/news/9467609/bank-of-canadas-interest-rate-hikes-are-working-to-tame-inflation-tiff-macklem/

2. CBC News

https://www.cbc.ca/news/canada/british-columbia/january-home-sales-down-greater-vancouver-1.6734982

3. Government of Canada