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Government policy triggered a recession in BC’s housing market this year, but the situation could have been worse, a new forecast from credit union Central 1 suggests.

“Price corrections in large urban markets will be modest given they are driven by policy measures rather than a broader job-loss inducing economic recession,” writes Bryan Yu, Central 1’s deputy chief economist, in the B.C. Housing Forecast Update 2018–2021.

Central 1 forecasts the median price of a BC home to finish the year at $530,000, up 6 percent from 2017 before falling by 1.9 percent, or about $10,000, in 2019. Over the following two years, prices will remain relatively flat.

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Meantime, Central 1 predicts 81,465 homes will change hands this year, plunging 17.4 percent compared to 2017. But by 2019, a recovery in activity is expected to begin with transactions inching up by 0.6 percent. In 2020 and 2021, further increases of 3.8 percent and 2.2 percent are expected. Overall, Central 1 says sales over this period will trend at levels observed between 2012 and 2014.

There are three main causes of this frostier outlook. One is new mortgage stress testing, which this January the federal government expanded to target uninsured mortgages. Then there are demand-side policy measures implemented this year like BC increasing the foreign-homebuyer tax for Metro Vancouver to 20 percent. And amid these changes, interest rates have been rising.

However, a number of factors are still supportive of sales activity. “Moderate economic growth, higher employment, wage gains and population expansion will remain supportive of demand,” says Yu.

Central 1 says the rate at which homebuilders start new homes is going to slow down in the coming years. By the end of 2018, developers will have started work on 40,000 homes, but housing starts are estimated to fall to an annual rate of about 32,000 units for the next two years.

“New housing construction will reflect the slowing market conditions, inducing builders to scale back in a market with weaker demand and slower presales,” writes Yu.

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