The Metro Vancouver real estate sales numbers are in and it is confirming a slowing market. May’s sales were 12.9% below the 10-year May sales average. The lower sales quickly lowered the sales-to-active listings ratios. While generally the narrative is that when the ratio dips below 12% for a sustained period, there will be downward pricing pressures, we are seeing price drops immediately before the 12% is reached. For example, the sales-to-active listings for detached and townhomes are 18.3% and 35.5% respectively, and the benchmark price for detached homes and townhomes have dropped 0.4% and 0.6% respectively over the past month. The sales-to-active listings ratio for apartments is 38.1% and it maintained a 0.4% increase month over month.
This result is not surprising since sales numbers and prices have been dropping in Toronto and nationally. The outlook of increasing interest rates has put a damper in the market. The Bank of Canada just raised their overnight rate by 0.50% on June 1st to 1.50% as expected. This immediately affects the variable rate mortgages and home equity lines of credit. What was surprising was how the Bank of Canada emphasized that inflation was entrenched and that they will require more aggressive monetary tightening. Nobody knows exactly what this means, but some are suggesting the overnight rate can go up past 3%, a number that was previously thought to be the target.
Even before this hike BMO and Oxford Economics were predicting a double-digit price decrease in Canadian home prices. Oxford Economics was saying a 24% decrease in a process that can take till 2024. BMO was saying a 10% to 20% is required to maintain the same level of affordability due to the changing rate environment. Scotiabank, the big 5 which has the highest interest rate predictions, actually has a very rosy picture of real estate prices over the next 12 months. Their base (most likely) case is a rise of 16.6% increase in home prices. Their best case is 19.5% and their worst case is a 9.8% rise. This is a head scratcher for me but with this recent Bank of Canada meeting, all these predictions should be revised downwards anyways. However, keep in mind these are predictions for Canada and not Vancouver specifically.
Have a great month and don’t forget it is Father’s Day on June 19th.
