Real estate sales in Vancouver in November were 33% below the 10-year average for November. The rate of new listings has slowed from last month, but total inventory is still increasing due to slow sales. Total inventory is now 3.7% above the 10-year average, compared to just 0.6% above last month.
The sales-to-active listings ratio has fallen across all categories. This ratio is a measure of supply and demand. A value between 12 and 20 is considered a balanced market, while below 12 is considered weak. Moreover, the trend of the ratio is a good indicator of price direction. When it drops, price momentum also falls. As evident from the table below, in the last six months, the sales-to-active listings ratio has been trending downward. Townhomes and apartments have been dropping in value, even before reaching the 20% mark.
December may be an opportune time for house hunting, as sellers listing their properties now are likely highly motivated. However, next year might present even more opportunities. First, there are Airbnb owners who must decide whether to continue their business, as all levels of government are targeting them to increase residential housing stock. Second, pre-sale buyers face challenges, with news of buyers unable to secure financing under current rates. They may be forced to assign their contracts at the original prices from years ago!
The busyness of the market will largely hinge on interest rate trends. With recent data, many believe a recession is likely in 2024. The timing of rate cuts is hard to pin down. In the United States, the majority view is that rate cuts could start as early as the middle of next year, with reductions of up to 1% for the year. For Canada, rate cuts might occur three months earlier and be 0.50% more than in the U.S. These views are based primarily on recession predictions and expectations that central bankers will respond by lowering rates. However, few analysts are considering the central bankers’ determination to eliminate inflation, which could delay rate cuts.
The fact that bond rates are falling sharply implies the market believes rates will drop soon. Looking at the 5-year government bond rate, it has almost fallen 1% in the last two months. The 5-year mortgage rate hasn’t dropped as much yet, but there is always a lag. I do hope rates come down soon to help all those variable rate mortgage holders.
