Is the housing market turning the corner after 2022’s severe slump?
It is still too early to say, but Lower Mainland home sales gained some traction and prices notched higher in February – signs that lower housing prices, greater interest rate stability (including lower fixed rates) and buyer impatience may have triggered a bump.
MLS home sales in the Metro Vancouver and Abbotsford-Mission areas reached 2,683 units combined in January, according to the latest real estate board statistics. This was still 49 per cent lower than a year ago, but comparable to a 55-per-cent decline recorded in January. Adjusting for normal seasonal factors, we calculated a significant increase in monthly sales of 10 per cent. Nevertheless, sales remain low on a same-month basis. Since 2009, only February 2019 saw fewer sales at 2,436 units, and sales were consistent with same-month 2013.
February’s pickup in activity was likely triggered by interest rate expectations and government policy. The Bank of Canada signalled a conditional policy interest rate pause, which likely provided greater certainty for buyers and buyer speculation that rates could decline later this year, which could ease payments. Easing bond yields and fixed-rate mortgage rates also incentivized buying. Government policy to unlock restrictions related to rentals and strata buildings likely added to demand.
Higher sales led to a rise in prices during the month. The average price rose six per cent to $1.13 million, although sales composition likely played a role. The benchmark price rose 0.9 per cent after nine consecutive declines. Both measures are down about 15 per cent from peak. The increase in benchmark home value was led by the more affordable segment of the market, with townhomes (up 1.2 per cent) and apartments (up 1.5 per cent) outpacing a 0.6-per-cent increase in detached markets. Higher prices reflect the dearth of inventory. The sales-to-active listings ratio rose above 20 per cent for the first time since July, which is firmly in the range of balance, if not favouring sellers.
The latest increase does not guarantee a rebound in sales and prices in the first half of the year. Financial conditions have recently tightened with bond yields up sharply following stronger-than-expected U.S. inflation, and the likelihood of more aggressive interest rate increases that last longer. The Bank of Canada’s conditional rate hold is temporarily safe, given falling inflation and slower economic growth, but the risk remains for more hikes.
December dollar-volume building permits in B.C. dropped to a seasonally adjusted $1.76 billion in January, 9.6 per cent below November. This was led entirely by multi-family building permits, which were down 27.9 per cent from December.
Total residential construction intention fell 21.3 per cent in January to a seasonally adjusted $1.10 billion, marking the lowest reading since February 2022. Despite the large monthly decline, the total dollar volume of multi-family construction permits in January was still 38.6 per cent higher than in the same month last year. Overall, residential building intentions remained 18.7 per cent above January 2022. That said, residential building intentions are expected to decline further in 2023.
Non-residential permit volume rose 20.8 per cent month over month to $654 million, with broad increases across sectors. Construction intentions in the institutional sector saw the largest proportional growth (43.8 per cent) in January, as Kelowna issued an $87 million permit for an educational building. Government spending on major projects will likely support building activity this year, while a slowing economy could temper private-sector activities.
Bryan Yu is chief economist at Central 1.
