Where’s the real estate market headed?

To find out, we asked Bryan Yu, deputy chief economist at Central 1 Credit Union. Here’s his forecast.

The lead-up

Housing market conditions have shifted since the end of 2017, following the introduction of the federal government’s B20 measures. These measures require federally regulated financial institutions to stress-test conventional mortgages at the Bank of Canada posted five-year rate or contract rate of an additional two per cent, whichever is higher.

First-time buyers

The stress test cut about 20 per cent of the purchasing power of a first-time buyer with a down payment less than 20 per cent. Even a first-time buyer with a higher down payment was credit-squeezed and had to lower expectations for a first home, according to Yu.

Trade-up buyers

Buyers looking to move up in the market are also being credit-squeezed because they must re-qualify at a higher stress-tested rate, if they change lenders. This is causing households to stay where they are or pay increased down payments through savings.

Looking ahead

Provincial tax policy uncertainty, related to increases in the foreign buyer tax and the speculation tax, will continue dampening detached home sales. Investors looking for a quick flip have largely disappeared.

For the second half of 2018, Yu forecasts resale transactions province-wide will decline by 11 per cent, led by Vancouver and other urban centres. This decline results from tighter credit availability and tighter housing policy rather than economic weakness or increasing interest rates.

• A significant correction is not forecast.
• Home sales have peaked, and the market is forecast to trend to a lower volume with slower price growth in 2019 and 2020.
• Resale housing transactions are forecast to rise modestly in 2019 and 2020.
• Metro Vancouver detached and luxury markets will see modest price declines.

New housing starts will reach 42,000 units province-wide in 2018, a three per cent decline from 2017.Starts will average 40,000 units in both 2019 and 2020.

Waiting the market out

A strong economy and insufficient inventory means owners will likely sit back and wait out the market.

During the past four years, the BC economy expanded by more than 3.5 per cent annually, but will slow over the next four years. After reaching 3.9 per cent in 2017, growth is forecast to ease to 2.9 per cent this year and average 2.7 per cent in 2019 to 2020, before slipping to 2.3 per cent in 2021.

Sales volumes are underpinned by ongoing economic and population expansion, growth in the housing stock, and still low borrowing costs.