It’s shocking to think that it has already been a year since the coronavirus pandemic brought an abrupt pause to the Canadian economy and our communities at large. Despite the enormous changes we’ve contended with over the past 12 months, there has been one bright spot; a sector that seemingly flourished in the midst of all this chaos – the Canadian real estate market. The housing sector – coast to coast – has been on fire, with record-breaking sales and price growth. Whether a condominium in a major urban centre or a luxury home in a rural community, everything and everywhere is posting impressive gains.
The British Columbia real estate market has joined the rest of the country in celebrating record-setting growth within local markets province-wide. At the same time, it is facing an industrywide problem: supply is falling, and demand is strengthening. This is digging the province deeper into a seller’s market, causing prices to skyrocket. In this type of housing environment, bidding wars and over-asking price sales are too common. This can be a barrier to entry for young first-time homebuyers.
Over the last decade, B.C. has attracted buyers – at home and abroad – and generated headlines for its real estate boom. It has always been the go-to destination for its strong economy, beautiful sights and sounds, and overall high standard of living. If these attributes were appealing during the pre-pandemic boom, they are appearing to be even more attractive amid the post-coronavirus boom. And this could be weighing heavily upon supplies.
British Columbia Real Estate Markets Dubbed ‘Starved for Supply’
Prices and sales dominated the most recent British Columbia Real Estate Association (BCREA) report. Residential transactions surged 89.1 per cent year-over-year in February, while prices gained 17.3 per cent to $889,584. Total sales dollar volume came in at a whopping $9.7 billion, up 121.8 per cent from the same time a year ago.
Total active residential listings slumped 28.7 per cent to a 21-year-low. Although new listings significantly increased, total housing stocks have eroded over the last year amid skyrocketing sales.
“Near-record sales in Metro Vancouver, combined with unprecedented housing demand outside of Metro Vancouver, continues to drive a blistering pace of home sales in BC. There is a drought of resale inventory across the province. With so few listings, and with so much demand for single-detached homes, average prices have increased dramatically,” said BCREA Chief Economist Brendon Ogmundson in a news release.”
He summarised the situation: “The supply of listings continues to be held back by the pandemic. With so few listings, markets are starved for supply and prices are under extraordinary pressure.”
Could an increase in housing starts alleviate the dramatic upward movement in prices?
According to the Canada Mortgage and Housing Corporation (CMHC), housing starts in British Columbia surged 35.41 per cent year-over-year in January to 25,430. However, completions tumbled 31.36 per cent to 24,620.
Is Cheap Money Adding to High Prices within BC Real Estate?
Last year, the Bank of Canada (BoC) slashed interest rates to 0.25 per cent, and the latest policy meetings signaled that the central bank will leave ultra-low rates at least for another year or two. This has made borrowing cheaper than it has ever been, injecting the economy with so-called cheap money. Despite concerns that this is fueling a housing bubble, the BoC is not too concerned, calling the market “robust.”
“Because people are working from home, they don’t need to commute,” stated BoC Governor Tiff Macklem during a January press conference. “Many people feel that even after the pandemic there is going to be more flexibility in many workplaces to work from home than there was in the past.”
But he plans to monitor the situation for signs of overheating. What kind of impact is this having on the overall real estate market?
Existing homeowners are refinancing at low rates and using the money to purchase an investment property. First-time homebuyers are borrowing enormous sums at low rates, offering more options based on the type of house they plan to purchase. But this is a double-edged sword because that means other consumers have access to the same cheap money, leading to over-asking price offers and intense bidding wars. It has been widely reported that people are forgoing house inspections to improve their odds of closing the deal.
As long as near-zero rates are here to stay, and supplies remain limited, it will continue to be a battle for property in the BC real estate market and the national housing industry.
2021 Already a Great Year for the BC Real Estate Market
White-hot, red-hot, or bullish…there are many ways to describe the BC real estate market at the beginning of 2021. Vancouver is enjoying impressive growth, rural communities are posting record breaking numbers, and the entire province is experiencing billions of dollars in sales per month. Whether or not these trends are part of a provincial market bubble remains to be seen, but until an injection of new supply pops up on the horizon, real estate in Canada’s west coast will continue to balloon.