Housing Market Outlook
1) Home Sales
Total home sales on the Multiple Listing Service for metro Vancouver for 2018 totaled 24,619 units was 31.6% lower than the 35,993 homes sold in 2017. The 2018 sales was the worst in 18 years, posting 25% below the region’s 10-year sales average.
- massive injection of liquidity and easing of interest rates by central banks around the world after the 2007 to 2008 credit crunch lifted home sales.
- since 2016 with credit tightening and rising interest rate in recent months, home sales slowed down and dropped significantly from its peark in 2016.
- 2019 home sales may stay flatline at 2018 level, and recover somewhat to 30,000 to 35,000 units for 2020 and 2021.
Home Sales Were 25% Below 10-year Sales Average
Stress Tests Disqualifying 18% of Canadian Home Buyers
Global Assets: Greater Vancouver Real Estate
November Home Sales Down 42.5%
2) Housing Inventory
Slower home sales and addition of new supply of homes will continue in 2019 resulting in further build up in the number of homes for sale in the market.
- slowing sales due to lack of buying interest and newly completed condos will add new home supply to the market.
- the seasonal nature of home buying and selling is expected to produce the inventory patterns as shown in the chart below.
- the current cycle where more homes are added than the number of homes sold, will push up the supply of homes in Metro Vancouver to the 17,000 units level for 2019, and if the market remains sluggish, the 2020 peark supply may reach 20,000 units.
3) Home Price
The housing down turn cycle is in play and this will likely last for another 3 years to bottom out. Many factors dampening demand for housing are not expected to be eliminated or corrected in the short term. Almost all housing pundits were pointing their fingures on the collapse in home sales as a result of the B20 policy - stress testing the ability of home buyers to service their mortgage obligations.
- the stress test effectively removes about 20% of the loan amounts that borrowers can be approved under previous lending guidelines.
- this effectively remove a large number of home buyers from getting the loan amounts they needed to buy their homes.
- until market sentiment improves when home prices decline significantly, only then more buyers will return to the market.
- home prices have to reach a lower price level that makes rental returns attractive enough for investors to buy.
How Low Home Prices Can Drop?
The pricing chart above showed that home prices overshot to the upside by a large margin. According to Mr. Dane Eitelan, an analyst at Eitel Economics, Vancouver's detached home price was predicted to drop 23% from its 2017 peak (over a period of 2 to 3 years) to bottom out in 2020 or 2021.
The current housing downturn will have to drop significantly towards the long term coloured price channels to make housing attractive to more home buyers. People are moving to Fraser Valley to find more affordable housing there. The influx of buyers to Fraser Valley, especially Surrey may help to caushion the decline and home prices may not fall as bad as in Metro Vancouver.