Rising interest rates and a tough mortgage stress test will combine to reduce home sales in the province next year, according to a forecast issued November 28 by the BC Real Estate Association (BCREA).
The association predicts that, following BC home sales falling by 8.8% in 2017 compared with last year, resale transactions will decline a further 10.4% in 2018, to around 91,700 units sold across the whole year.
BCREA pointed out that the 10-year average for home sales in the province is 84,700 units a year, and said that “strong economic and demographic fundamentals are supporting elevated housing demand.”
However, it added that there were two key factors that will bring home sales down to between 2014 and 2015 levels.
“Housing demand across the province will face increasing headwinds in 2018," said Cameron Muir, BCREA’s chief economist. "A rising interest rate environment combined with more stringent mortgage stress tests will reduce household purchasing power and erode housing affordability. Given the rapid rise in home prices over the past few years, the effect of these factors will likely be magnified."
Home prices across BC are not expected to decline next year, but average price rises will be less steep than they were in in 2015 and 2016’s hot markets. Residential resale prices in BC are forecast to be 3.1% higher this year than last year, at an average of $712,300, and to rise a further 4.6% to $745,300 in 2018.
However, the BCREA’s price-rise predictions for next year vary considerably across the province, with Greater Vancouver’s average home prices expected to rise 5.5% in 2018, but Victoria’s just 1.4%.
The BCREA pointed to the near-decade low of housing inventory as a key driver in recent price increases. The report said, “The imbalance between supply and demand has been largely responsible for rapidly rising home prices.”
But it added, “The combination of weakening consumer demand and a surge in new home completions next year is expected to induce more balanced market conditions, producing less upward pressure on home prices.”