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.

Vancouver home sales dropped significantly

Related Links:

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.

HPI home price is showing signs of weakness

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. 

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Home Sales Were 25% Below 10-year Sales Average 

According to the Real Estate Board of Greater Vancouver, after tallying the Metro Vancouver total home sales for the year, 2018 suffered the worst sales in 18 years. Total home sales were the lowest since 2000, and were 25% below the region’s 10-year sales average.

There were 24,619 sales of detached, attached and apartment properties on the Multiple Listing Service for 2018, a 31.6% lower than the 35,993 total sales in 2017.

The composite benchmark price for all residential homes in Metro was down 2.7 per cent to $1,032,400. The price of detached homes was down 7.8 per cent.

Over the past 6 months, condo prices declined 6.4%, and townhome prices decreased 5.3%. The indicator to watch for 2019 is "the supply of homes for sale"

Mortgage Stress Test - B20 Regulation

Canada's federal finance regulator has implemented mortgage rules as of January 1 2018, at a time when mortgage rates are on the rise. The Bank of Canada after hiking the overnight rate five times over the past six quarters, together with the stress testing, has added 3% to the qualifying rate for homebuyers.

The stress test has been commonly cited as one of the main causes of the Canadian housing market cooldown. The stress test is based on “the greater of the Bank of Canada’s five-year benchmark rate (currently 5.34 per cent), or the contract mortgage rate plus two percentage points.” The stress test effectively lowers the purchasing power of home buyers by about 20%.

There are speculations that policymakers may ease stress testing if the Canadian housing market continues on its downward trajectory this year.

Detached Home Values Sink

The spectacular rise in detached home prices peaked in 2016, is now on its way back down. Since early 2017, the dramatic changes in the real estate market had shifted into a buyer’s market, especially for detached homes and particularly for the priciest mansions in Greater Vancouver.

According to statistics released last week by BC Assessment, an average single-family home fell around 12 per cent in value in 12 months, from July 2017 to July 2018.

Related Links:

Stress Tests Disqualifying 18% of Canadian Home Buyers
Global Assets: Greater Vancouver Real Estate
November Home Sales Down 42.5%

The values for more expensive properties showed the biggest decline of 15% to 17%, according to data analyzed by Landcor Data Corp. North Shore News reported headline "Real estate values sink for detached homes in West Vancouver, North Vancouver" highlighted the housing market situation in the north shore of Vancouver

Since the July assessment date, Realtors say the market has continued to fall. "In some high-end West Vancouver neighbourhoods, houses have sold in the past few months for $1 million under their assessed values".

Presale condos Completion

Many presale projects will be completing soon. With over 40,000 homes coming on stream and due for completion, the stress test imposed for loan approval effectively reduces about 20% of the loan amounts new condo buyers can get to complete their purchases. The situation will arise that the presale condo buyers will be forced to come out with more money to cover the shortfall, or forced to sell their condos.

Vancouver preconstruction condos price collapse danger

There will likely be many such forced sales situations, selling through assignments of their contacts. If the market turns bad suddenly, many may be forced to sell at a loss or walk away and lose the deposits they paid for their presale condos.

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