LOOKING BACK & AHEAD

As one year ends and another begins we experienced absorption increases across Metro Vancouver and the Fraser Valley with the market stabilizing as predicted, despite two further unpredicted interest rate increases by the Bank of Canada. The 14,447 units sold is somewhat reminiscent of 2018 sales pace – a swift start and a decline of pace, albeit 2023 finished with an uptick that the end of 2018 and any quarter of 2019 never showed. There is optimism.

Looking Back

Last quarter we predicted further market stabilization for the fourth and final quarter of 2022 and into 2023. In review we saw more stabilization and market absorption than anticipated. In addition, the Bank of Canada has hinted at an interest rate pause furthering confidence in a more stable market ahead.

It was a further surprise to us, although perhaps less so, that the new real estate laws that came into effect in January 2023 may have contributed to the market’s surge last quarter.

For resales, a new three-day cooling-off period has been introduced, but it does not apply to the new home industry, which already has a seven-day right of rescission for all home buyers under REDMA and is therefore exempt from the new three-day rule for resale transactions in BC. According to the province, this allows the buyer time for inspections and financing, things that they are already allowed subject clauses for, if they choose. The province’s move to some is comic and seen as more electioneering while adding extra paperwork.

On the federal scene, the ban on foreign ownership across Canada was a seemingly unnecessary and largely symbolic move by the Liberal government, considering that statistics show it to be a minute factor, if any, in our real estate markets. Foreign ownership remained at less than 1.5% of all home sales during the buying frenzy of 2021. It appears to be a vote-seeking move by our leaders, while they continue to implement policies that make it harder for Canadian first-time home buyers to gain entry into the market.

With interest rates where they are, is the stress test for entry-level buyers still necessary? Why make it harder for them to qualify in the current economic climate? What does this three-day prior allow resale buyers to accomplish?

From a product perspective, the year-to-year drop in townhome sales at first is troubling; however, with deeper review this was largely due to pricing overshooting buyer thresholds for mortgages. Many developers have since adjusted pricing and are now realizing absorptions similar to the last more stable market year of 2016.

What does this three-day period allow resale buyers to accomplish?

According to the province, this allows the buyer time for inspections and financing, things that they are already allowed subject clauses for, if they choose. The subject clause gives them a week or two, as no one can arrange any of those things to happen within 3 business days, not even in a slower market. The province’s move is laughable and seen as votebuying, adding extra paperwork with zero benefit to the consumer in the end.

The market had already been correcting itself over the last three quarters of 2022 without government intervention; however, recent government actions aimed at slowing it down through bureaucratic means have added red tape and extra costs for entry-level Canadian buyers, while removing them for those who can put 20% or more down.

Looking Ahead

With the new mayors and councils all in place, we expect to see some major changes and ideally progressive action coming through the local municipalities. This while the Provincial Government plans to take a more active role in ensuring new supply on a more timely basis. Communities we feel to keep an eye on for this include the Township of Langley, Surrey, and Maple Ridge.

The expected pause furthering interest rate hikes is likely to result in further market stability during the First Quarter and possibly First Half of 2023. Under-supplied neighborhoods will continue to see strong sales, and areas with abundant supply will experience steady absorptions, as long as they remain competitive and offer unique strategies.

We do not see the recent new regulations implemented by governments/ government intervention to have more than a minimal impact on the market ahead. We see the recent new regulations implemented by our government officials are expected to have minimal impact on the market, as the numbers and statistics from the previous hot market cycle in 2021 indicate their insignificance.

• What do you think the market will do in the first quarter of 2023?

• Will the foreign buyer ban have any measured impact on the market?

• Will we see distressed sales of development sites and/or new homes given the significant increase in borrowing costs for some?

• How do you think the market will do in the First Half of 2023?

• Do you think 2023 overall will be a better year? Why?

• What moves do you see will happen with the new local councils and mayors, with the development approval process in particular?

If you have a view you would like to share and/or questions you would like to discuss please contact Jamie Squires at Jamie@fifthave.ca.