BC – Despite a strong provincial economy, Multiple Listing Service® (MLS®) residential sales in the province are expected to slow by nearly nine per cent by the end of 2017.
In 2018, MLS® residential sales are forecast to decrease a further 10 per cent due to increased borrowing costs.
Even so, housing demand is expected to remain above the ten-year average of approximately 85,000 units through 2018. Consumer confidence in the B.C. housing market is high, supported by a strong-performing economy and corresponding employment growth.
The B.C. economy is forecast to expand by 3.8 per cent this year, the fourth consecutive year of 3 per cent or more real GDP growth. The cumulative effect has fueled employment growth to its strongest performance in almost 20 years.
Since January 2015, the province has added nearly 180,000 jobs. Consumer confidence is high, with retail sales in
B.C. expected to increase by an extraordinary 9 per cent this year. While provincial economic conditions appear to be on a sound footing, the housing market will be slowed by less inward migration and higher borrowing costs.
Rising interest rates will erode affordability in the new year, while tougher mortgage qualifications for conventional mortgagors will reduce their purchasing power by up to 20 per cent.
The Bank of Canada raised its overnight interest rate twice this year, bringing its key policy rate back to
1 per cent. Canadian borrowing rates have risen in turn, with contracted 5-year fixed mortgage rates now above 3 per cent for the first time since 2014 and the 5-year qualifying rate approaching 5 per cent.
Higher interest rates make the burden of elevated household debt more onerous, meaning a tightening of household budgets and slower growth in consumption spending. The change in monetary policy is not due to higher inflation, which has yet to materialize, but rather stronger growth in the Canadian economy.
In addition, the high level of net migration from other provinces, especially Alberta, is expected to wane, which will slow overall population growth and demand for housing.
These factors will likely be exacerbated by already elevated home prices which have been pushed up by limited supply. The supply of homes for sale is now trending at or near 10-year lows in most BC regions. This imbalance
between supply and demand has been largely responsible for rapidly rising home prices.
While slowing demand will help balance the market, the expansion of the housing stock will further slow
the ascent of home prices. There are now over 56,000 units under construction in the province, up 54 per cent
over the last 24 months.
Many of these units will be completed in 2018, adding much-needed supply to the market. The combination of slowing housing demand and a rising inventory of homes for sale is expected to move the market toward more balanced conditions next year.
