What does the current Victoria real estate market look like?
As part of our monthly Market Insight Series, I am excited to continue to bring you regular insights into the Victoria and Vancouver Island market trends, so you can make better buying and selling decisions. Below I will jump into the most important market numbers to look into, I will provide glossary term definitions, and will conclude with resources if you want to further research current trends and stats. If you want to see what the Market Insight for the previous month was, click here.
Now that we are at the start of a fresh new year, it's a good time to recap what happened in 2022 in preparation for the year ahead. While it may feel like forever ago, 2022 began with record low inventory and higher than average sales. This of course changed rapidly with the fastest interest rate hike in Canadian history. The end of low-cost borrowing pushed many buyers out of the market. Since a large proportion of buyers rely on mortgages and financing in order to purchase their first, or next home, each time interest rates rose, more buyers exited the market. Either because they were priced out of what they could previously afford, or for some would-be investors, because the numbers didn't line up with their specific needs.
At the start of 2023 the cost to purchase still remains high and sellers are getting less for their properties than they could at the beginning of 2022. This means that we can anticipate a much slower housing market in 2023 with fewer buyers, and also likely fewer sellers as well. However, with the slow down in demand, this will mean more opportunities for buyers who are still in the market this year. Perhaps most of all, the current prevailing market offers the greatest advantage to cash buyers, effectively anyone who doesn't have to rely on a mortgage or private financing. These buyers are spared the increasing cost to finance and they can take advantage of the current cool market conditions.
Beyond interest rates, there are a couple of new government interventions recently coming into effect. The first is the federal government's ban on foreign buyers. Although the stated intention is to help buyers by curbing demand, this is unlikely to impact the cost of housing since market data shows that foreign buyers have only represented a handful of transactions in our area in recent years. The other recent intervention is the Provincial government's introduction of the cooling-off period which began Tuesday, now known as the Home Buyer Recission Period. The new minimum three-day legislated term is unlikely to protect many buyers though since most conditional offers tend to be longer that 3 days. For example, anyone needing financing approval is typically asking for at least a week or more, and unconditional offers have all but disappeared for the time being. Unfortunately, each of these interventions appear to be too little too late, and seem primarily motivated to build voter confidence, rather than focusing on the much needed, but long, arduous, and less attractive task of building more housing supply. Hopefully the new housing initiative recently launched by the Provincial government will be a catalyst to stir an increase in building more housing inventory, but only time will tell.
As for market fundamentals, and the current economic outlook for real estate this year, not much has changed since last month. As in recent months, the market is still largely driven by rising interest rates and the direction of these interest rates will be determined by what happens to inflation in the coming months. Although it's impossible to know exactly how the market will move this year, TD bank is forecasting that inflation has likely already peaked in Canada, and the Bank of Canada is projecting inflation to decline to about 3% by the end of 2023. If those projections are accurate, then interest rates should pause and begin to decline this year. This would strengthen the real estate market and begin to drive renewed demand leading to a rebound in housing prices. Keep in mind though that we are also seeing the development of a longer term trend of aging demographics in Canada and every other developed economy in the world. So, it's likely that this anticipated interest rate decline in the short term will gradually be counter balanced by a structural rise in credit and capital costs driven by changing demographics and a growing wave of mass retirement. As people retire and move towards fixed income and safe lower yielding investments (i.e. bonds/treasuries), their ability to consume and their willingness to invest in the broader market declines. Both of these declines tend to drag on the economy raising the cost of credit, capital, and interest rates. This means that even if inflation can be subdued or managed in the short term, we can't necessarily expect a return to business as usual with the same low interest rates we've seen for the last two decades.
Below is a table that outlines the current housing benchmark pricing along with a sample calculation that can give you an idea of what it might cost you to own a home.
Opportunities for ordinary people looking to get into their first home, or move up into an affordable nicer home are still out there, it just takes a bit of diligence, and ideally the support of a committed agent.
Conclusion
The goal is to give you insight into what the overall market view looks like in Victoria and Vancouver Island. I have included more Resources below so that you can dive in and read more at your leisure. I will also make sure to include a new Glossary Term each month, and define it to add to your knowledge of common industry terms.
Feel free to contact me if you want to learn more or if you have any questions about the broader market trends.
Glossary Term
Bareland strata
A "Bare Land" strata is governed by The Bare Land Strata Regulations and refers to the subdivision of land into strata lots and common property. Typically for strata properties all of the lots share land and walls, as well as common property. In a bare land strata each lot is individual and may have a single family self-contained dwelling. Usually a developer will create a bare land strata and sell the lots. The bylaws may stipulate rules that govern size, style, or color of the units to be built. The developer may provide common facilities like recreation rooms, parks, roads, etc. The common assets become the responsibility of the owners to maintain. Strata fees are commonly charged in bare land strata's to maintain the common property. Usually these strata fees are lower than a normal strata property as the fees do not cover maintenance of individual dwellings.
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Resources
1. VREB Insight:
2. Mortgage Calculator:
3. Mortgage Rate By Bank: