The red-hot housing market cycle Metro Vancouver has experienced these past two years is winding down, but that doesn’t mean a significant market correction is on its way.
Kevin Skipworth, partner, broker and chief economist at Dexter Realty, said in the company’s March 2022 sales and listings report that the “sales super cycle” that Metro Vancouver housing market has experienced is ending after two years. The Fraser Valley and Greater Vancouver have reported a 22.5 per cent and 25 per cent drop in sales from a year ago, a signal that the cycle is nearly ending in these regions and that the lower end of the market is “thriving more.”
However, the end of the cycle isn’t expected to fix Vancouver’s housing market.
“This does not mean a major market correction is coming. It does mean that we could be moving back to a calmer, more friendly environment for homebuyers, which would be a welcome relief to many,” stated Skipworth in the report.
“March saw a number of Greater Vancouver buyers moving quickly to purchase before the next round of lending rate increase, but we expect the sales and price increases to slow in the months ahead comparative to where we have been,” he added.
New listings rise from February, but still struggle in certain communities
Across Greater Vancouver, 4,405 home sales took place during March, a 25 per cent drop from a year ago but a 27 per cent jump compared to February.
Last month, 6,802 new listings were brought online. Although newly-added homes were down 20 per cent compared to March 2021, they were 20 per cent above the region’s 10-year average and improved 22 per cent from February. Greater Vancouver had a total of 7,970 total active listings by the end of March, up from 7,062 at the end of the previous month.
Despite the increase, there is only two months’ worth of supply across Vancouver. Areas like North Vancouver, Burnaby, Coquitlam and Maple Ridge currently have one month’s home supply or less, according to Skipworth. Apartment listings are becoming increasingly difficult to source, much like townhomes. Vancouver East and Richmond have seen their apartment arsenal drop to one month’s worth, as Pitt Meadows has just half a month’s supply.
“It will take a surge in new listings to get this market back to balance, but the question is, will that happen and if so, when?” said Skipworth. “Realistically we would need to see 15,000 to 18,000 active listings to get to a balanced market.”
Price exhaustion, dwindling supply could contribute to cooling market
A few factors could contribute to a cooldown in the Vancouver market cycle.
On April 13th, the Bank of Canada is scheduled to make its next announcement on the mortgage-influencing overnight rate, which could send rates higher by 0.25 per cent or 0.50 per cent.
Skipworth commented that this will be the “true test of the market,” as rates rise, hiking variable rate mortgages in the process. As the mortgage stress test qualifying rate is two per cent higher, this will equal six per cent on a five-year rate mortgage, which Skipworth says could negatively affect a borrower’s debt-service ratio and their home purchasing power.
A chronic lack of supply is also pulling the reins on the market. A dearth of new homes is preventing sellers from listing their property and buying a new one. Adding to the supply issue, B.C. housing starts decreased monthly by 4,000 units to 31,300 new homes in February, but Metro Vancouver home starts are down 23 per cent so far this year compared to 2021. Fears over soaring construction costs are keeping some developers at bay, Skipworth pointed out.
B.C. has recently introduced its plans to implement a ‘cooling-off period’ which would provide homebuyers a timeline to consider their offers and complete conditions for financing and inspection. However, Skipworth pointed out that this policy could become a point of frustration between buyers and sellers and may tie up properties, which may “only further exacerbate the issues we see in the housing market.”
Adding to the mix, there are also indications of price exhaustion.
“This is apparent now in outlier suburbs, which had seen dramatic price hikes since 2020, but we will also see price increases slowing in central areas, at least through the first half of 2022,” said Skipworth. “Prices can only go up so much.”
