This time around, the Vancouver real estate industry was not surprised.
The preceding interest rate hike sent a “shockwave” through the industry, says Kevin O’Toole, Managing Broker at Sotheby’s International Realty Canada. But the Bank of Canada’s latest rate increase this month — reaching 3.25% for its Overnight Lending Rate and bringing prime up to 5.45% — hit a cooling market already braced for more.
“It doesn’t mean we necessarily like it, but our expectations — based on messaging and forecasts from various economists, et cetera — were that they were going to raise it to that,” O’Toole says. “We would have been pleasantly surprised had it been lower. But we were not surprised based on everything that we’ve heard.”
Short-term sales activity, long-term challenges
Vancouver developers have described a “nightmare” scenario in terms of bringing new supply to market. As for buying and selling, O’Toole says there’s a variety of short- and long-term impacts of the latest increase.
“I’d say the short-term impact would be for some of the buyers who were sitting on the fence, but who were [able] to lock in with their mortgage providers for a 90-day rate freeze, which would give them some certainty if they were to complete within the next 90 days,” he says. “So it probably pushed a few people to purchase.”
More broadly, prospective buyers already financially squeezed are now likelier to be pushed out entirely, O’Toole says, especially since they have to qualify for even higher rates with the mortgage stress test. Homeownership in Metro Vancouver has become more difficult for ordinary people and, as a result, sellers will see their home prices drop, especially in the under-$2 million market.
Meanwhile the luxury market -- both buyers and sellers -- likely will not be affected as much, O’Toole adds.
Not a buyer’s market — yet
The Vancouver market is slow at the moment — or “incredibly slow” compared to the pandemic frenzy, O’Toole points out. According to figures from the Real Estate Board of Greater Vancouver (REBGV), before the latest rate hike, August 2022 sales were down almost 30 per cent compared to the 10-year August average. Compared to August of last year, it’s a 40 per cent drop.
It’s too soon to call a buyer’s market, O’Toole says, but it’s increasingly possible.
“It is more of a balanced market right now,” he says. “Will it stay in that balanced territory? Or will it move to a buyer’s market? That remains to be seen — and there are some signs showing that in some segments of the market.”
With slower sales, listings are collecting and lingering on the market, and O’Toole says some listed prices are not keeping up with reality. He heard one U.S. realtor sum it up perfectly.
“‘Sellers are in the mindset of six months ago, buyers are in the mindset of six months from now’ — and I quite liked that phrase,” O’Toole says. “It’s a tough thing to accept that the market can change very quickly.”
‘Cooling-off period’ in a cool market
Looking ahead, British Columbia has another big move on the horizon.
The Home Buyer Rescission Period (HBPP) — expected to launch in January across the province, with specific details yet to be seen — will allow buyers to withdraw from a purchase agreement within a certain amount of time. Without such a “cooling-off period,” a buyer exiting a deal would usually get hit with major financial and legal penalties.
O’Toole expects the HBPP will slow the market again, and questions the rationale in today’s reality.
“[The HBPP] could potentially skew the market into a much more difficult thing to predict,” he says. “It was meant to cool the market, right? But it’s already cooled. So it’s potentially making it more difficult for transactions to occur for those who need transactions to occur — I don’t mean the real estate community, I mean the actual home sellers and homebuyers. If you’re a home seller, you’re likely a homebuyer as well.”
January feels like a million years away, however, considering how quickly the market has changed over the past few years — and the past few months.
“There’s still a lot of unknowns,” O’Toole says.
This article was produced in partnership with STOREYS Custom Studio.