During calmer economic times than these, housing markets everywhere — including ours here in Metro Vancouver — have a seasonal cadence to them: at the beginning of the year, sales start to rise, peaking in March. They level off through the summer; there’s a fleeting resurgence in October; and then they begin a downward trajectory, measurable on an almost day-by-day basis, into the winter holiday season.
Inventory also typically surges to begin the year. Its trajectory remains oriented unambiguously upward into the summer months, where it plateaus. From there, it begins to recede, in parallel with the hours of daylight, as we advance towards the winter solstice.
But so far in 2023, our market hasn’t been following the script.
Ryan Berlin is the Senior Economist and Vice President of Intelligence at rennie.
Instead of topping out in March, MLS sales in Metro Vancouver reached their apex in May, following five consecutive months of month-over-month increases — a pattern that is virtually unheard of in this market. That said, sales remain below long-run averages, despite the sustained growth.
Similarly, in a typical year, Metro Vancouver’s housing inventory expands by 30% from January through March. In Q1 of this year, the total number of homes available for purchase was up only 11%. (Furthermore, when adjusted for total population, this market is suffering from its lowest per-capita housing supply on record.)
So, what’s going on?
The culprit is “macro-ality,” or the myriad of macroeconomic factors that are exerting outsized influence on the market. More specifically, it’s interest rates (spurred by inflation dynamics) that are dictating the rules of engagement for participants in our housing market.
So what does the dominance of macro-ality mean for our market going forward? Succinctly put, if the Bank raises its policy rate again in September – following the relative shock and awe of two hikes in June and July – expect sales to recede (as price and affordability uncertainties become dominant themes) and inventory to continue to expand (as depressed sales won’t chip away existing supply enough, and some homeowners seek to unburden themselves of expensive mortgages).
Should this scenario transpire, home prices will likely stagnate for the next 6 months, give or take.
An alternate scenario could also play out — one where the Bank’s policy rate reaches its terminal level in the near-term (or is already at it). This would yield mortgage cost certainty that translates to enhanced buyer confidence, which would manifest as market stability, with macro-ality ceding overall influence to seasonality.
Regardless of the future end state for our market, expect the dynamics of housing supply and demand to be governed by the interplay between inflation and interest rates for the balance of 2023. In other words, would-be home buyers and sellers will be best-served by keeping tabs on macro-ality — not seasonality — as our housing market evolves over the coming months.
This article was produced in partnership with STOREYS Custom Studio.
