Vancouver Property Market — Knife's Edge — Sep 2023
The Vancouver property market has been on a roller coaster ride recently. After years of rapid price appreciation, the market cooled off in 2022, with prices falling by an average of 10%. However, the market has started to pick up again in 2023, with prices rising by an average of 5% in the first half of the year.
Several factors contribute to the recent upswing in the Vancouver property market. One factor is the rising cost of renting. Rents in Vancouver have been increasing faster than wages, making it more difficult for people to afford to rent. This has led some people to consider buying a home instead.
However, the Vancouver property market shows signs of cooling as we move into September. While the benchmark price published by the real estate board is still rising, the median prices in East Vancouver and Richmond have stalled or dropped.
Purchase-sale volumes have been falling after an average Spring.
While purchases are losing momentum, inventory is beginning to accumulate on the market. In 2023, prices rose due to record-low listings rather than record demand. As inventory grows, buyers will gain more power to negotiate.
The detached house market has doubled from 3.5 months to 7 months worth of listings. The house market is balanced.
Vancouver condo apartment market inventory is growing, too, from 3 months to 4 months of supply. The condo market is still a seller’s market, but buyers are gaining more negotiating power as the year progresses.
Why are there fewer home purchases in Vancouver?
There are several factors contributing to the cooling of the Vancouver property market.
Government Regulation: The B.C. Government recently announced that the maximum 2024 rent increase in the province is 3.5 per cent when landlord expenses are growing at 5.6 per cent. While the policy is a relief to tenants, it signals to landlords that the government prioritises affordability to tenants above ensuring that landlords can break even on their investments. We should expect that out-of-province rental investors might build their rentals in other cities like Calgary or Toronto rather than take on the risk of unpredictable rent controls.
Mortgage Rates: Rising interest rates are making it more expensive to borrow money, which is reducing buyer demand.
Why might prices drop in Vancouver?
Increasing Inventory: Another factor contributing to the cooling market is the accumulating number of homes for sale. While three months of supply is not high, it is the highest the market has seen since 2019. This supply increase gives buyers more options and reduces the heat in bidding wars.
Faltering Consumer Sentiment: Consumer sentiment tends to reinforce existing trends. It’s like an amplifier. While confidence in real estate was rising in the first half of 2023, it has now stalled. If a sustained downward price trend emerges, confidence is likely to tumble. Byers with low confidence in price appreciation often delay their purchases and compound the weakness in the market.
Reports earlier in 2023 were hopeful for a recovery after the double-digit price drops in 2022. However, the recent trends suggest that the market is cooling down again. Home sellers in Vancouver should be prepared to negotiate.
Here are some other things to keep in mind about the Vancouver property market:
The market cooling down is broad, impacting all property types. Speculative investment appears to have shifted from British Columbia to Calgary.
The rental market is still strong, with rents continuing to rise. This could be cyclical — due to potential first-time homebuyers delaying their exit from the rental market. When mortgage rates fall, and buyers re-enter the market, rents could fall sometime in late 2024 or 2025.
The government is taking steps to cool down the housing market, such as introducing a foreign buyers' ban.
Overall, the Vancouver property market is showing signs of cooling down. The house market is balanced but the apartment market is still a seller's market, and buyers should be prepared to face competing bids and conditions negotiations.
