Photo: James Bombales
Affordability in Greater Vancouver continues to decline as home prices continue to skyrocket. But increasing interest rates might prevent affordability from continuing its downward spiral in 2018.
In December 2017, Greater Vancouver home prices rose roughly 16 per cent year-over-year to $1,050,300, according to the latest data from the Real Estate Board of Greater Vancouver (REBGV), published this month.
Home price appreciation hit a year-low of 7.9 per cent in June before accelerating rapidly in the second half of 2017.
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“Already we’re dealing with overstretched affordability in the area. So, any further that prices go up then it puts even more stress on households and buyers in the area,” RBC Senior Economist Robert Hogue tells BuzzBuzzNews.
If prices do climb, the economist says that pressure will build on the provincial government to intervene once again.
Hogue is referring to policies the BC government has already implemented in Greater Vancouver to cool the housing market, including the 15 per cent foreign-buyer tax introduced in August 2016.
While there is a risk that prices keep climbing rapidly in 2018, Hogue doesn’t expect the trend to continue.
The economist notes that over the past two months, Greater Vancouver’s market has returned to balanced demand-supply conditions which may help ease price appreciation in the near term.
In addition, Hogue expects that higher interest rates will help slow price growth.
On January 17th, the Bank of Canada will make its first rate announcement of the year. Many economists predict that the central bank will hike its overnight rate, which affects mortgage rates, by 25 basis points, the first of what could be multiple hikes this year.
Hogue says rate hikes will help ease price appreciation by cooling demand in Greater Vancouver.
“We would need to release some of the pressure on prices currently. We would need the Bank of Canada to raise interest rates [on January 17th]. And then, at the same time, send a signal that it’s not over, that interest rates will continue to rise over the coming year,” says Hogue.
Hogue adds that the new mortgage rules that came into effect on January 1, which include a stress test for uninsured mortgages, should also help push Greater Vancouver home prices down in 2018.