It is still early, but B.C.’s housing market may have found its footing.
October Multiple Listing Service (MLS) housing data recorded a strong bump in sales of 5.8 per cent to mark the first monthly gain since January. Seasonally adjusted sales reached 5,402 units, the highest since July. That said, sales flow can be erratic, and levels remained 44 per cent below the pandemic peak and 17 per cent below pre-pandemic February 2020. Higher mortgage rates continue to price a large swath of buyers out of the market, but lower pre-approved rates, steady fixed rates and lower prices may be drawing some buyers back in. A strong provincial labour market and robust population growth are also supporting confidence.
Regionally, October gains were led by Vancouver Island with sales up nearly 20 per cent in Victoria and 13.7 per cent in other parts of the island, while sales also increased in core areas of Metro Vancouver and the Okanagan. A surge in island activity could reflect demand from equity-rich retirees moving from other regions.
Despite the sales uptick, market conditions are still subdued. New listings flow rose 4.7 per cent from September and lifted active listings higher for a tenth straight month. The latter is up 50 per cent year over year with gains particularly substantial on Vancouver Island. That said, levels are not particularly high with the upswing owing more to a dearth of listings a year ago, while homes on the market have sat unsold for longer. The sales-to-active listings ratio, which trends near 20 per cent, is still balanced, although the rapid deterioration in sales trend has shifted purchasing power to buyers and significantly reduced sale prices.
The average sales price fell again in October by 1.4 per cent to $941,050. This is 11 per cent below peak. Sales composition likely drove swings around the province, including a six per cent increase on Vancouver Island outside Victoria and Kamloops, while prices fell in Victoria and the Lower Mainland. That said, the trend remains negative. The quality-adjusted housing price index showed declines of 0.4 per cent in the Lower Mainland, 0.7 per cent in the Okanagan, 1.2 per cent in Victoria and 2.3 per cent on the rest of the island. Over the past six months, the house price index is down more than 10 per cent in the Fraser Valley with more modest declines in other markets.
In our view, sales are likely at or near bottom with some downside risk if interest rates move higher than expected. Mortgage rates are likely to remain elevated through 2023 while the economy is forecast to slow. While many sellers will try to wait out the downturn and are unwilling to reduce prices, we anticipate lower purchasing power to ultimately erode average prices with a peak-to-trough decline of about 15 per cent to 20 per cent with home sales remaining range-bound for most of 2023.
B.C. consumers found their wallets lighter than consumers in other provinces as year-over-year inflation reached 7.8 per cent and nearly a full point higher than the national picture.
Gasoline propelled prices with a 4.7 per cent increase from September to lift year-over-year gas price growth to 29 per cent, well above the national increase of 17.7 per cent.
That said, even without the lift of gasoline and other energy prices, consumer price index inflation in B.C. was still seven per cent. Households continued to face pressure in grocery aisles where costs rose 10.2 per cent higher than a year ago. Shelter costs rose 0.8 per cent from September but year-over-year growth held steady at 7.5 per cent. Rent has increased slower than ownership costs, which have been lifted by higher mortgage interest rates, offsetting flow through of lower home values.
Consumers saw relief in furniture prices, although levels were still 13.7 per cent above those a year ago. Clothing prices rose 0.8 per cent month to month, but were still down from a year ago. A weak Canadian dollar and a return to social events may be boosting these prices.
High inflation, which is eroding real incomes, remains a pain for consumers. Inflation will decelerate in 2023, but households will continue to face the shock of higher prices and interest rates on their budgets.
Bryan Yu is chief economist at Central 1 Credit Union.
