One more rate cut, so will buyers jump back in?
For the third consecutive meeting, the Bank of Canada has reduced its key interest rate by a quarter point, bringing down mortgage costs for homeowners with variable rate mortgages and lines of credit. While not overly expected, there was some thought that a half point reduction could have come. But what this does now is leave the remaining two meetings open to further reductions in the Bank of Canada’s rate as the economy and inflation numbers clearly are indicating that stimulus is needed. Even though the United States’ Fed seemed steadfast in keeping their rate unchanged for the remainder of 2024 earlier in the summer, they have now signalled that there will be a rate cut in September at their meeting on the 17th. Expect both countries to use the remainder of the year to reduce their rates, with Canada going from the current 4.5% to 3.75% or even 3.5% by the time 2025 begins.
Of course, fixed rate mortgages are affected by bond yields, and after hitting a high of 4.46% in 2023 the five-year Canada bond rate then dropped down to 2.9% in July and is just over 3.0% now. This likely means fixed interest rates won’t see much change from the Bank of Canada interest rate cut in September as bond markets typically predict what’s going to happen and thus bond rates are priced accordingly. Meaning, everyone is expecting a rate cut.
But as the fall moves forward expect fixed rates to see movement downward as the Bank of Canada is predicted to continue its downward trajectory. All this means is mortgage costs will come down and buyers will have more incentive to go back into the market. And with 2025 coming, we’ll start to see five-year mortgages come up for renewal that were locked in to record low rates. The disincentive to sell could be off the table for those with expiring “cheap rate” mortgages and create more transactional activity in the real estate market.
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All signs point to a market that will see demand unleash, but it’s a question of when. Buyers are likely saying “show me the rate reductions” before fully embracing this buyer’s market.
Kevin Skipworth
Dexter Realty
Sales dropped, but there are buyers patiently waiting.
There were 1,903 properties sold in Greater Vancouver in August after 2,333 properties sold in July, 2,418 sold in June, 2,733 sold in May, and 2,831 sold in April. Buyers have signalled they want more interest rate relief with the total number of sales declining month over month for the fourth straight time. And they are about to get it. What will be the tipping point to move buyers back into the market at a greater pace? We’ll likely see that this fall. Sales in August were a 17% decrease from the 2,296 properties sold last year after a 5% decrease in July from the 2,455 properties sold in July 2023, and a 19% decrease in June from the 2,988 properties sold in June 2023.
Last summer, buyers faced the shock of two sudden Bank of Canada interest rate increases, which brought sales activity quickly down after a robust spring in 2023. To see sales levels at this level after two rate reductions points to a deep pool of waiting buyers. Economic uncertainty certainly weighs on the market with unemployment rates rising and overall spending being held in check. All signs point to a market that will see demand unleash, but it’s a question of when. Buyers are likely saying “show me the rate reductions” before fully embracing this buyer’s market.
Sales in August were 26% below the 10-year average after July was 18% below the 10-year average and June was 24% below the 10-year average. This trend will be changing in the months ahead as buyers get behind interest rate reductions. Like 2019, the fall market will be more active than spring. We’ve seen an increase in listings, albeit not as many as 2019, and how many listings come out in the fall will dictate where prices go over the next six months.
Listings are down, but absorption is up.
With the number of new listings dropping for the fourth straight month, the absorption rate increased to 45%, the highest percentage since March. Even with the lower number of sales, fewer listings were added to the overall active listing count. And with approximately 400 listings expiring at the end of August, that total dropped even more at the start of September. Greater Vancouver is pushed up to seven months of inventory, closer to a buyer’s market, after being at six months and lower all year. All areas in Greater Vancouver have shifted into balanced to buyer’s markets after North Vancouver, New Westminster, Port Moody, Ladner and Pitt Meadows being the only areas in a seller’s market prior to August. This is mainly due to falling sales in those areas. Westside Vancouver and Richmond joined West Vancouver in buyer’s market territory due to their drop in total sales along with higher active listing counts. There may be areas and product types that act differently either with stronger activity or less activity. It’s not unusual to see multiple offers on Vancouver’s Westside detached houses while condo apartments downtown sit without any offers.
The number of new listings dropped again in August, the biggest month over month decline this year. After seeing 7,229 in April, 6,484 new listings in May, 5,851 new listings in June, 5,689 new listings in July, the total for August was 4,199.
While the number of new listings declined month-over-month, there were slightly more new listings in August this year compared to that month in 2023. In August 2023 there were 4,015 new listings, 5% more than August last year. August typically sees the real estate market less active, so it's not completely surprising to see fewer new listings come on but after a higher number in July, it perhaps could be a trend of less seller activity through the remainder of 2024.
The number of new listings in August were 1.5% below the 10-year average, after seeing July at 12% above the ten-year average, June at 2% above the ten-year average, May at 7% above the ten-year average and April at 29% above the ten-year average. Even with the summer slowdown, August produced less listings than typical for this month.
Active listings may have peaked.
There were 13,812 active listings in Greater Vancouver at month end, compared to 14,325 at the end of July and 14,180 at the end of June. After being up 46% year-over-year at the end of May, currently there are 37% more new listings year-over-year. After the end of August, September started with 13,444 with listings expiring at the end of August or sellers simply taking them off the market. In 2019, there was a similar pattern, with the active listing count going from 15,037 at the end of July to 14,191 at the end of August and continuing to decline for the remainder of the year to finish with 9,309. We’ve likely seen the number of active listings peak in 2024 and as we move through the remainder of the year, buyer choice will likely decline.
Overall the detached market in Greater Vancouver is up to ten months supply from eight while townhomes and condos both jumped up to six from five months supply, making it a balanced to buyer’s market in the region. Detached homes are showing less buyer engagement while townhouses and condos are in some areas still in a seller’s market. With cost control on the minds of buyers, it’s not surprising to see lower priced properties being more attractive in the market.
The biggest movement in BC in August was the shift in the political landscape, with the leader of the BC United party stepping his party away from the election race. It’s now a two-horse race. Housing is sure to be a significant part of the campaign for both parties, but will either party have a viable solution for increasing supply? For eight years, the NDP government has moved the needle very little even with significant regulatory and legislative changes to property rights and municipal zoning requirements. Investment in housing has been pushed away, without considering that small scale investors provide rental stock at a pace far greater than the government can. And while the push has been to build more purpose-built rental buildings, it has come at the cost of multi-family units for ownership. This will have long-term effects for buyers and future private rentals in the years to come. Supply and demand shouldn’t be ignored but unfortunately supply is being stifled for future buyers with current policies as well as current economic conditions.
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