Housing market recession deepens in B.C.

BC’s housing market recession deepened in August with few signs of an imminent recovery and interest rates still on the rise.

Multiple Listing Service (MLS) home sales fell to a seasonally adjusted 5,370 units in August, marking a 5.4 per cent drop from July and a seventh straight monthly decline. While the downward trend owes in part to the record pace observed in early 2021, the pace of decline is moderating. Sales declines were observed in nearly all real estate board areas with the largest in Kamloops (minus 14 per cent) and the Kootenay (minus 16 per cent).

Vancouver Island sales fell eight per cent, inclusive of Victoria and the central and north island regions, while Lower Mainland-Southwest sales fell five per cent.

Relative to February 2020, sales have retreated the most in the Fraser Valley and on Vancouver Island. Declining sales owe to the rapid downturn in affordability as surging interest rates pushed buyers to the sidelines, icing some of the region’s hottest pandemic markets as affordability seekers no longer have refuge. While fixed rate mortgage rates have been elevated for some time, variable rates have rapidly increased since the beginning of the year.

Through August, the Bank of Canada had raised short-term rates by 225 basis points with another 75 basis point hike observed in September.

Home prices continued to grind lower with negotiating power shifting to buyers. The average price of homes sold in August came in at $954,733, down 0.1 per cent from July and 10 per cent from February.

Prices have rolled back to the lowest levels since September. That said, average prices are influenced by sales composition. Constant-quality benchmark prices fell more significantly from July by two per cent provincially, highlighted by Chilliwack (minus-6.5 per cent) and the Lower Mainland (minus-2.2 per cent). Provincially, the composite declined five per cent from the peak. Downward price pressure is likely as rates continue to rise, but low supply likely provides support.

New listings fell for a second straight month and active listings growth was negligible. Prospective sellers are not panicking amidst strong labour market and a tight rental market.

B.C. manufacturing sales nudged lower in July to extend the recent downtrend to four months. Dollar-volume sales at B.C. factories slipped 0.3 per cent to a seasonally adjusted $5.71 billion. Despite the drop off, sales remained near record highs and 10 per cent above year ago levels and 30 per cent higher than February 2020.

July’s pullback was driven entirely by non-durable goods, which fell 0.8 per cent.

While industry data availability is limited, half of the net decline owed to a 1.2 per cent drop in food product manufacturing.

In contrast, durable goods manufacturing held steady with a 0.1 per cent gain after three months of decline as wood product manufacturing increased 3.0 per cent, while non-metallic mineral products and primary metal manufacturing both rebounded.

These gains were offset by declines in fabricated metals (minus-7.6 per cent) and a dip in machinery manufacturing.

Nevertheless, B.C.’s manufacturing sector has lost momentum owing in large part to resources-related production. Higher interest rates have curbed demand for housing in the U.S. and pushed wood prices sharply lower, triggering lumber and paper mill curtailments. Meanwhile, the global economic slowdown and recession fears have cut metal and mineral prices. Domestically, the economy remains firm, but higher interest rates and a housing downturn will further contribute to a slide in manufacturing sales. •

Bryan Yu is chief economist at Central 1 Credit Union.