The pace of home sales in the province has slowed in recent months but an unprecedented start to the year still has BC on track for a record-breaking year.
An expected second-half slowdown has arrived, prompted by eroding affordability and a tightening of mortgage qualification rules. However, with the BC economy on track for very strong growth this year and next, along with the eventual return of normal migration flows, home sales are anticipated to remain well above long-run average levels into 2022.
Canadian mortgage rates have remained stable after rising from all-time lows earlier this year. At an average of just 2.14 per cent for a 5-year fixed rate and under 1.5 per cent for a variable rate, borrowing costs continue to be highly supportive of housing market activity. That said, the implementation of a new stress test rate, which is now the higher of a borrower’s contract rate plus 200 basis points and 5.25 per cent for both insured and uninsured mortgages, has likely taken some demand out of the market. Even with sales moderating slightly in the second half of this year, we are forecasting that home sales in 2021 will set a new record of 118,350 units before slowing to 100,150 units in 2022.
With strong demand being supported by low mortgage rates and a rapidly rebounding post-COVID economy, the more significant concern is whether there will be an adequate supply of listings in the market. The supply situation is especially severe in markets outside the Lower Mainland, where new listings activity has been lacklustre. Even if sales come back down to long-run average levels, total listings would need to nearly double to bring markets back into balance. Prices are under significant upward pressure due to extremely tight market conditions, while buyer preferences are still tilted toward extra space and larger homes. As a result, the average price in 2021 is on track to post a second consecutive year of double digit gains. We are forecasting the provincial average price to rise 16.6 per cent to $911,300 this year, followed by a 2.9 per cent gain next year to $937,300.
From this table, you can see that BCREA is forecast Average prices in the Interior ( including Kelowna) are set to grow an average of 16.8% this year, and 3.6% next year.
Realistically, if inventory levels don't start to improve, I believe we can expect average prices to rise more than this.