Housing Market Outlook For 2019
The soft housing market of 2018 continued into the first 2 months of 2019, posting total home sales of 2,587 units which were 36% lower than the total home sales of 4,025 units for the same period a year ago.
The decline in Canadian home sales during the credit crunch of 2017/2018 lasted just about a year, and rebound quickly. Home prices continued to climb and stalled briefly in the spring of 2010. Home prices in Greater Vancouver continued to march higher and peaked around the spring of 2011.
Many of the detached home sellers cashed out when home sales slowed in 2011, 2012 and 2013. Lenders were cautioning their clients not to get into the market as they felt home prices had shot up too high and they feared that a correction was about to happen. Buying interest gained momentum and home sales and home prices marched higher due to strong buying interest and short supply of inventory. Home buyers continued to bid up home prices from 2013 to 2016 when demand far exceeded the supply of homes for sales.
Detached home reached their peak prices in early 2016 and home prices were range bound for the next 30 months. Finally in early May 2018, home prices dropped, when selling pressure continued to build up in the later part of 2018, and eventually the average detached home price crashed below $1.6 milion. There is a strong likelihood for the average detached home price to crash below $1.4 million.
The recovery in home sales and the recovery in the demand for detached homes, townhouses and condos may take some time to play out. A bottom out process may drag out for a period of time as buyers are in no hurry to enter the market as they feel home prices are still high, and there are rooms for home prices to fall further.
It is anybody's guess as to whether detached home prices will stabalize at the $1.3 million or $1.2 million level. In a down cycle, market undergoes a period of consolidation that can take 2 to 3 years to bottom out. The housing market is facing strong headwinds that work negatively against the market:
- Home prices are still very high and unaffordable.
- Impact of China’s tightening of capital controls.
- The absence of marginal mainland Chinese buyers who played a big part in the housing market.
- Higher interest rates compared to a few years ago.
- Tougher bank financing - stress test imposed by the government.
- Regulatory measures discouraging real estate speculation.
Until market conditions become more favourable, home buyers will likely remain on the sideline for sometime. More supply of homes for sale and fewer homes sold will result in further increase in the inventory of homes for sale depressing home prices. Presale condos that are completing in 2019 will add selling pressure on resale condos and presale new condos that are currently offered for sale to the public.