A Closer Look: Vancouver Real Estate Market Trends and Predictions

One word might be best to describe the state of the Vancouver real estate market: Booming.

After a modest drop in sales activity and home prices last year amid the Bank of Canada’s (BoC) inflation-fighting crusade, one of the world’s largest housing markets is enjoying exceptional gains despite rising interest rates and a slowing national economic landscape.

Strong demand and limited inventories have essentially allowed residential property prices to accelerate faster than many market observers anticipated at the beginning of the year.

So, what is happening in Canada’s second-largest urban centre?

Vancouver Real Estate Market Trends

According to the Real Estate Board of Greater Vancouver (REBGV), home sales surged slightly more than 21 per cent year-over-year in June, totalling 2,467 units. Despite the sizeable increase, transactions were surprisingly 8.6 per cent below the ten-year seasonal average.

Home prices continued to trend north of the $1.2 million mark to kick off the typically busy summer buying season.

In June, the MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver slipped at an annualized rate of 2.4 per cent and rose 1.3 per cent month-over-month to $1.203 million.

“Despite elevated borrowing costs, there continues to be too little resale inventory available relative to the pool of buyers in Metro Vancouver. This is the fundamental reason we continue to see prices increase month over month across all segments,” said Andrew Lis, the REBGV director of economics and data analytics, in a statement. “With the benchmark price for apartments now standing at $767,000, we repeat our call to the provincial government to adjust the $525,000 threshold exempting first-time home buyers from the Property Transfer Tax, to better reflect the price of entry-level homes in our region. This is a simple policy adjustment that could help more first-time buyers afford a home right now.”

Indeed, new residential listings edged up a little more than one per cent year-over-year, totalling 5,348 detached, attached, and apartment units. This was also 3.1 per cent below the ten-year seasonal average. Moreover, active residential listings plummeted nearly eight per cent year-over-year to below 10,000 units. This, too, was below the ten-year seasonal average by approximately 17 per cent.

At the same time, new housing construction activity levels have been robust this year, including in June.

Housing starts in the Vancouver real estate market advanced 42 per cent year-over-year to 3,905 units in June, data from the Canada Mortgage and Housing Corporation (CMHC) show. On a year-to-date basis, housing starts climbed nearly 50 per cent to 17,458 units, compared to the same time a year ago.

What’s Next for the Vancouver Housing Market?

When the May 2023 statistics were published, Lis noted that market experts had been surprised by the upward trend in Vancouver housing prices.

“Back in January, few people would have predicted prices to be up as much as they are – ourselves included,” he stated. “Our forecast projected prices to be up modestly in 2023 by about two per cent at year-end. Instead, Metro Vancouver home prices are already up about six per cent or more across all home types at the midway point of the year.”

But there is one thing holding the market back from even higher growth: interest rates.

In fact, if it were not for elevated mortgage rates – the conventional five-year fixed-rate mortgage rate increased to nearly six percent in July – the Vancouver real estate market would be similar to the scorching 2016-2017 and 2021-2022 activity.

With Metro Vancouver unlikely to witness any notable drop in home prices, affordability conditions are “at crisis levels,” says senior RBC economists Robert Hogue and Rachel Battaglia.

“Despite improving slightly in the first quarter of this year, housing affordability remains at crisis levels in Vancouver,” they wrote in a research note. “No doubt this poses huge challenges for many buyers.”

It is not only Vancouver that is expected to experience better-than-expected growth. The broader British Columbia real estate market is forecast to see tremendous growth in 2024 and 2025, with the average home price returning to above the $1 million mark, according to Central 1.

“We do not see a path to a return to pre-pandemic home prices, and buyers should expect elevated values to be the norm,” said Bryan Yu, the chief economist and assistant vice president of Central 1 Economics, in a recent report.

Average B.C. home prices are expected to slip 2.7 per cent this year but then climb 0.5 per cent in 2024 and 3.6 per cent in 2025, buoyed by demand from millennial and Generation Z households and record-high international immigration levels.

What is the best indicator of where prices are heading in Vancouver? The sales-to-active listings. When the ratio is below 12 per cent, there will be downward pressure on home prices for a sustained period. There will be upward pressure on prices when the ratio is above 20 per cent. In June, it stood at 31.4 per cent across all property types.