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 Victoria and Vancouver Island market trends so that 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.
Let’s break down Victoria’s summer real estate market with the precision of a number-crunching machine. August 2024 saw 545 properties change hands in the Victoria Real Estate Board region. That’s a tiny 0.2% increase from the 544 properties sold in August 2023 but a hefty 16.5% decline from the 653 sold in July 2024. It was nothing earth-shattering, just the typical summertime lull with many people camping, traveling, or generally away on Summer vacation.
Here’s where it gets interesting: condo sales saw a bit of a spike, up 10.4% year-over-year, with 181 units sold. Single-family homes took a hit, down 7.7% from August 2023, with only 252 transactions. Potentially a sign of renewed strength among first-time buyers and those who are more budget-conscious.
Victoria Real Estate Board Chair Laurie Lidstone says that August is typically slower. People are out enjoying the summer, taking vacations, and not focused on buying or selling real estate. So, it’s no shocker that the numbers are close to last year’s, with a noticeable dip from July.
Now, let’s talk listings. By the end of August 2024, there were 3,191 active listings on the MLS®. That’s a 4.7% drop from July but a 28.2% increase from the 2,490 listings in August 2023. This could mean we’ll see a busier market as we roll into the fall.
The benchmark value for a single-family home in Victoria Core dropped 3% from $1,327,800 in August 2023 to $1,287,400 this year. That’s also down slightly from July’s $1,296,100. Condos also took a slight hit, with the benchmark value decreasing by 2.9%, from $575,900 last year to $559,200 this August. Again, this is down from July’s $567,800.
Macro Trends
Zooming out, some more important factors may soon have a big impact on our local real estate market and the broader Canadian housing market. These include shifting interest rates, lowering inflation, renewing mortgage loans, a changing market economy, and homeowner affordability concerns. Below is a list of market factors to watch between now and 2025.
Market Factors:
Positives:
Lowering inflation
Another Bank of Canada interest rate drop in September, with more expected this year
Anticipation for the first Federal Reserve interest rate cut later this month
Increasing housing affordability due to lower interest rates and declining inflation
a relatively stable and balanced local market
Negatives
and a weak economy and Canadian real estate market
A rising unemployment rate at 6.4% in July of 2024
Limited household inventory and fewer home construction starts
A forecasted $350 billion in mortgage renewals in 2025
Weakening Canadian per capita GDP
So, what is the overall takeaway based on the above positives and negatives? Well, it's still too early to say, given that each factor could significantly impact the market going into 2025. At the same time that many economists and market analysts are optimistic, some industry professionals, including mortgage brokers and real estate agents, are forecasting the makings of another market downturn. With that in mind, I'll offer three views: a positive, a negative, and my take.
The Positive Outlook:
Inflation continues to fall, allowing the Bank of Canada (BoC) to continue cutting interest rates. Additionally, the Federal Reserve is expected to make its first interest rate cut this month. This should spur market confidence, which could help adjust bond yields and continue to bring down both fixed and variable interest rates in Canada and the US. The falling interest rates and inflation should add to household budgets and housing affordability. Add to that a year-over-year increase in household inventory and a soft housing market, and you have the conditions to spur on increasing demand for real estate gradually. Although the Canadian economy is currently weak, we may be approaching the BoC's goal for a soft landing. Unemployment is still high, and many mortgages will be renewed at higher costs next year. However, the economic stimulation and cost relief brought by falling interest rates should be enough to gradually reverse unemployment and reduce the impacts of rising costs for most homeowners. An eventual economic recovery and lower interest rates should result in a strong housing market rebound going into 2025.
The Negative Outlook:
Although inflation rates and interest rates are dropping, the actions taken by the BoC and the Federal Reserve are too little, too late. Canada is facing a surge of mortgage renewals, with $250 billion worth of renewals already occurring in 2024 and another $350 billion set to renew in 2025. With housing unaffordability already at an all-time high, a weak economy with stagnating per capita GDP, and a significant uptick in unemployment, the housing market will take a long time to recover. The growing disparity between actual income and household costs means housing is woefully overpriced and is due for a significant correction. At the same time, while Canada's overall GDP has continued to grow, this is primarily due to population growth driven by immigration. Therefore, a per capita reading of GDP is the more accurate indicator, and it shows lower economic productivity, which generally leads to less wealth and a negative impact on real estate. Overall, we should expect a decline in housing demand, leading to a substantial housing correction.
My Take:
While the above narratives draw on reasonable considerations, I think the real estate market going into 2025 will be somewhere between. While I don't think we're heading for economic catastrophe, I also don't believe we're gearing up for a sudden return to pandemic-level prices and demand either (a view previously championed by Royal Lepage earlier this year). As interest rates continue to fall, demand and consumer confidence should slowly lift into 2025. Although we will see substantial mortgage renewals between 2024-25, with major banks saving up provisions for mortgage defaults, I don't think this will be the be-all and end-all some anticipate. Unfortunately, mortgage defaults will likely harm younger buyers and first-time homeowners. Still, falling interest rates, mortgage adjustments, deferral options, and plain old help from friends and family should be enough to carry most struggling homeowners. It's also worth noting that most homeowners tend to be older demographics who purchased their home a while ago in a cheaper market and have spent years paying down their mortgage. So, we shouldn't expect a massive real estate earthquake. Although we're probably in for a bumpy ride as the Canadian economy struggles to find its footing, the worst may already be behind us.
Contrary to the popular optimism of many market analysts, I don't think falling interest rates will substantially impact buyer demand between now and early 2025. Instead, I believe real estate markets will continue to soften or remain relatively flat between now and early next year. If we get another two rate cuts this year, that may cause a slight lift in buyer demand but not a significant bump. Although I think that buyers looking to purchase a home could save a little money between now and early spring 2025, it probably won't be a significant discount. Contrary to the pessimism of many industry experts, I don't think it's clear that we're in for a massive housing correction, at least not at this point. While it's true that some of the more expensive and lofty markets, like Vancouver and Toronto, are already seeing noticeable declines in demand and noteworthy price adjustments on specific product types like condos, these markets don't represent all of Canada, and they certainly don't represent Victoria or Vancouver Island. Rather than a big sell-off, I think we'll see a mild softening in prices into early 2025 until the delayed impacts of falling interest rates have started to catch up. Then, we could see a gradual but steady rise in demand beginning in late spring or early Summer next year. But, as the old saying goes, no one can predict the future, least of all economists! So, the best we can do is assess what's right in front of us now and update our expectations as new information comes in.
Below is a table that outlines the current housing benchmark pricing and 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 the overall market view 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 have any questions about the broader market trends.
Glossary Term
Escrow
Escrow is a neutral third-party account that holds funds and documents during a real estate transaction until all conditions are met. "In escrow" is often used in real estate transactions whereby property, cash, and title are held in escrow until predetermined conditions are met. Typically, escrow is managed by your lawyers, who manage, complete, and certify the transaction on your behalf.
Read More:
Resources
1. VREB Insight:
2. Mortgage Calculator:
3. Mortgage Rate By Bank:
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