STOREYS CUSTOM STUDIO
This time around, Vancouver’s real estate industry was not surprised.
The previous rate hike sent a “shock” across the industry, says Kevin O’Toole, director of brokerage at Sotheby’s International Realty Canada. But the latest rate hike from the Bank of Canada this month – reaching 3.25% for the overnight lending rate and raising the core capital to 5.45% – hit a quiet market already bracing for more.
“That doesn’t mean we necessarily like it, but our expectation — based on messages and projections from various economists, etc. — is that they will raise it that far,” O’Toole says. “We would have been pleasantly surprised if it had been less. But we are not surprised based on everything we heard.”
Short-term sales activity, long-term challenges
Vancouver developers described a “nightmare” scenario in terms of bringing new supplies to market. As for buying and selling, O’Toole says there are a variety of short- and long-term effects of the recent surge.
“I would say the short-term effect will be for some buyers who have been sitting on the fence, but they have been [able] To reach out to mortgage providers for a 90-day interest rate freeze, which should give them some certainty if they are to complete the business within the next 90 days, he says. “So it probably got some people to buy.”
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More broadly, potential buyers already under financial stress, O’Toole says, are now more likely to be turned away entirely, especially as they have to qualify for higher rates through the mortgage stress test. Home ownership in Metro Vancouver is becoming more and more difficult for ordinary people, and as a result, sellers will see their home prices drop, especially in the less than $2 million market.
Meanwhile, O’Toole adds that the luxury goods market – both buyers and sellers – likely won’t be affected as much.
Not a buyer’s market – yet
O’Toole notes that the Vancouver market is currently sluggish — or “incredibly slow” compared to the frenzy of the pandemic. According to figures from the Real Estate Board of Greater Vancouver (REBGV), prior to the latest price hike, August 2022 sales were down nearly 30 percent compared to the 10-year average in August. Compared to August last year, it’s a 40 percent drop.
O’Toole says it’s too early to get in touch with a buyer’s market, but increasingly possible.
“It’s a more balanced market right now,” he says. “Will it stay in that equilibrium? Or will it move into the buyer’s market? It remains to be seen – and there are some signs that are showing that in some market segments.”
With sales slowing, listings pile up and stay on the market, O’Toole says some of the listed prices aren’t in line with reality. He heard an American realtor sum it up perfectly.
“Sellers are in the mindset of six months ago, buyers are in the mindset of six months from now,” O’Toole says — and I absolutely loved that phrase. “It’s hard to accept that the market can change so quickly.”
Cooling off period in a cold market
Looking ahead, there is another big step in British Columbia on the horizon.
The Home Buyer’s Bailout Period (HBPP) – expected to launch in January across the province, with specific details yet to emerge – will allow buyers to opt out of the purchase agreement within a certain time period. Without this “cooling-off period,” a buyer who walks out of the deal usually faces significant financial and legal penalties.
O’Toole predicts that HBPP will slow the market again, and questions the rationale in today’s reality.
“[The HBPP] It can skew the market into something more difficult to predict, he says. “The market was supposed to cool, right? But it’s already chilled. So it will probably make it difficult to transact for those who need to transact – I don’t mean the real estate community, I mean actual home sellers and buyers. If you are a home seller, you probably are. You buy a house, too.”
January seems like a million years away, considering how quickly the market has changed over the past few years — and the past few months.
“There are still a lot of unknowns,” O’Toole says.
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