The Vancouver Life Real Estate Podcast 4 Key Metrics Point To Home Prices Increasing In Coming Months
This week we saw the Bank of Canada release its curated Monetary Report and as it reads (BoC) officials considered the possibility of raising interest rates again on April 12, 2023, according to a summary of the deliberations that led to the latest monetary policy decision. This development suggests that the central bank is leaning more toward rate hikes than cuts as it waits for inflation to fall. The minutes revealed that there are two perspectives within the BoC on whether to raise rates or not. One rationale is that markets continue to price in a probability of a severe economic contraction and a sharp drop in interest rates. The other perspective is that markets expect that policy rates will naturally ease back as inflation softens and supply and demand return to balance. The meeting suggests there was an active debate about restarting the rate-hike campaign!
The Canadian economy has proven to be “a little stronger than expected,” and the labour market remains tight, with unemployment near a record low and wages growing quickly. This resilience was one of the arguments in favour of another rate hike, along with the concern central bankers have that inflation may get stuck above the bank’s 2-per-cent target. “While governing council was more confident that inflation in Canada would continue to fall in the coming months to around 3 per cent, the second stage of disinflation all the way back to 2 per cent could prove more difficult,” the summary said.
The Canadian real estate market is experiencing a shortage of inventory. In 2015, there were 250,000 listings in Canada, but by 2022 that number had dropped to 100,000. While it rose to 140,000 in January, it has been falling for three months, which is unusual for a time when inventory typically rises. National new listings have been at 20-year lows for four months in a row, not adjusted for population growth. The national sales-to-new listings ratio is the leading indicator for where prices are going, with prices lagging about six months behind. The ratio is up about 15% in the last six months. The housing starts collapsed 11% in March, the fourth decline in five months, and is now at the second-lowest reading since 2004.
The Canadian economy has been performing well in terms of employment with unemployment just above record lows and there are still 900,000 job vacancies!! Canadians are also managing the costs of servicing their debt, with credit card delinquencies rising but still below pre-pandemic levels.
Housing prices are expected to pick up momentum over the next 3-6 months, with the national sales to new listings ratio being the leading indicator for where prices are going. The collapse of housing starts in March and the record number of new PRs admitted into Canada are factors that could contribute to the increase in housing prices for 2023.
In terms of who's buying, the wealthy appear to be driving the housing market for the time being and we are seeing more and more competition for homes as inventory really becomes the main struggle in Vancouver. The plex plan, should it pass, could result in the largest private sector construction boom in BC's history and as such people should expect building supply prices to increase dramatically, trade costs and availability could shrink compounded with longer permitting time to get projects pushed through the city.
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