This month, instead of looking just at the Squamish Real Estate market update we are going to dive deeper into market analytics for the Greater Vancouver area.
It’s officially 2023, and with that comes some predictions about the year ahead. There are a number of bad news stories floating around in the mainstream media regarding the state of the Canadian and the Greater Vancouver real estate market. Some are true, but most are sensationalized. Here are some predications about the year ahead and what we can expect in terms of inflation rates, interest rates and pricing. Of course, this information is speculative, but there is a lot of intelligence involved in formulating these predictions.
Here is a link to the slide deck to see the full presentation: click here.
Inflation. Our interest rate is rising in an attempt to combat runaway inflation, so the question of what is happening with inflation has been critical to understanding what might happen with interest rates. When the intelligence team worked on creating a a projection for the year they looked at 2022 in two halves. The first half paints a very different picture than the second, so it stands to reason to take the second half of 2022 as the more relevant data point, as it shows the results of inflation after numerous interest rate hikes and therefore more current inflationary pressures. The second half of 2022 saw 0.7% increase in inflation (as compared to 5.2% in the first half), as shown below.
Taking those inflation pressures, below are the three scenarios on where our analysts see the inflation rate heading throughout 2023. The red line is following the established inflationary pressures of June – Nov of 2022, the black line is if they doubled the inflationary pressures of the second half of 2022 and the grey line is if they halved the inflationary pressures. Regardless of the scenario, we end up with inflation in and around the 2-3% range by the end of the year, which is what the Bank of Canada is aiming to achieve.
What does that mean? Well, it should mean that interest rate hikes are all but done for now, and we should start to see a relaxing of the interest rates in mid-2023. Below is a graph showing the interest rate growth pattern, as compared to other market tightening periods. This chart truly shows how aggressive the banks felt they had to be in this particular instance. Due to how things are tracking currently, many still believe that the BOC is going to issue a further .25% increase to the prime rate on the Jan 25th meeting, however, it should at that point stop and hold steady for a while. The bank is going to need to see hard proof that the inflation rate is receding accordingly before it issues any cuts to the prime rate so likely it will be late spring, early summer before interest rates start coming down.
At the end of the day the big question is, when do we expect a recovery and what are home prices doing? In the below chart you will see that in the Vancouver condo market home prices had fallen by 9% in November since the previous peak. The intelligence team expects they will dip a further 3% (12% total) over the next few months and in April/May we can start to expect home prices to start their recovery. With all going well, a full recovery is expected by early Spring 2024 – approximately 21 months after the tightening begun. On the below graph you can also see the various different data points for both the 2008/09 recession and the 2017/18 market correction and the time it took to recover.
This is a fairly positive outlook compared to what you are seeing and hearing through the media, and it is definitely based on some calculated assumptions. For example, let’s say a big change happened to the labour market (i.e. unforseen inflationary pressure change), like the unemployment rate doubled, this projection would change dramatically, likely showing interest rates coming down quicker and the recovery taking longer as a result. As it stands, unemployment is holding steady at 4.6% as of December for Metro Vancouver (down from 4.7% in Nov) since the huge hike we saw at the start of the pandemic (almost reaching 14% in metro Vancouver). See the graph below.
If you have any questions relating to this, let me know. I am always happy to share any insights.