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Victoria’s Housing Outlook for 2022

Why the Victoria Housing Market is a Bubble and You Should Probably Buy Anyway (Part 1 of 2)



The great benefit of my job is that I get to speak to a lot of people every day. This gives me a good insight on how people tend to think when it comes to real estate in Victoria and Vancouver Island. With the prices soaring and the real estate market still fiercely competitive, I have seen a shift in how people have taken a moment to pause and reconsider whether now is the right time to buy.


As with other major life choices, the decision to buy property is deeply personal and needs to make sense in the context of your own individual life priorities. For some, the financial timing might not be right, for others there may be personal or family priorities that need to take precedence. These priorities are important and need to be treated with the seriousness and gravity they deserve.


At the same time, there are others who are financially and personally ready to purchase, but are concerned about the financial and economic state of the market. The biggest concern of buyers in our market is that they are about to buy at the height of a bubble, just before it’s about to pop. Today I’m here to tell you why I think they are both right and wrong. Probably.


First off, there are two things I can tell you about my background, one more embarrassing than the other. First, being a nerd I have two degrees in Economics, a Bachelors and a Master’s degree. I’ve applied this discipline and training in many areas of my life, both personally and professionally. Second, despite this substantial level of education, until a couple of years ago, I, like many other people wrongly assumed that the Victoria housing market is a bubble that is bound to pop. This despite having the knowledge and education to determine otherwise.


Historical Background on the Victoria Market


I can’t remember when exactly I first adopted the belief that the Victoria real estate market is a bubble, but I recall first hearing it in my childhood and carrying it forward from there. However, the blanket statement of calling something a bubble can be misleading. If I had taken the time to explore the real picture even 10 years ago, it would have outlined a very different story. Between 2002 and 2012 The Victoria real estate market saw incredible growth, in 2002 the average house in Greater Victoria (including Sooke and North Saanich) sold for $280,218 (I know!). By December 2012 those numbers ballooned to a whopping $515,250! Even at that time, my baseline assumption was that half a million dollars was way too high for a house. Yet today, as of December 2021 the average price for a single family home is $1,324,154, up from $992,202 the same time last year. Even, if we look at the current benchmark prices for December 2021, adjusted to be more reflective of the typical home, greater Victoria prices still come in at $1066,800. More than double the prices in December 2012, and almost four times what it was in 2002. Now if you’re like me, your gut emotional response is to say many of the same things I’ve said and thought before, “Those prices are too high”, “It’s a bubble”, “how can anyone afford this? The prices have got to come down at some point”. And you might be right, but by looking at the current and historical data in this crazy market, odds are you would probably be wrong.


Now I know what you might be thinking, “Past performance is not indicative of future results”, and if so, you are entirely correct. The present market and the past are worlds apart. To take just one data point, the cost of housing is significantly higher than real wages relative to ten or twenty years ago. Despite this fact, there are a number of indicators suggesting that the rise in housing prices won’t be stopping any time soon, at least probably not in 2022. With that in mind, here are the first couple of factors to consider when trying to understand this market.


Low Inventory


Perhaps the biggest challenge Canadian home buyers will face this year is the fact that nation-wide housing inventories are at historic lows and Victoria is no exception. At the end of December 2021 the Victoria Real estate market had 652 active listings, down from 1,279 active listings in December 2020. According to the Victoria Real Estate Board, this is the lowest level of month-end active listings in the last 25 years if not longer. As many long-time residents of Victoria know, low vacancy, limited housing supply and rising prices have been commonplace for decades. However, with new inventory lows setting in and the current demand for housing not slowing down, we can expect housing prices to continue to rise this year.


Competitive Mortgage Rates


While I personally believe that low housing inventory is the main driving narrative in Victoria, another way you could look at it is that we don’t have a supply problem, but rather a demand issue. At least that is the way that one BMO senior economist has described it. According to one article, Canadian inventory production is actually near a record high, it’s just that people have never bought more homes before and this is suppressing supply coming from resales and new completions. Some evidence supporting this position include the facts that:

  • Housing construction starts in Canada exceeded 300,000 in November

  • Housing completions in Canada are at a record high

  • Total number of listings for existing homes across Canada are higher than before the pandemic

If this is true, it’s not surprising given the extremely low interest rates we have been seeing. Just sticking with the major banks, recent variable and fixed 5 year mortgage rates have been as low as 1.572% and 2.762%. While there is wide anticipation that Bank of Canada interest rates, and subsequently mortgage rates will rise modestly this year, it’s not certain what impact this will have on current demand. The common expectation is that the current surge in demand will start to slow down by the middle of the year, but time will tell. That being said, the general consensus is that prices are still anticipated to rise nationwide in 2022, and Victoria is part of that forecast. More on that shortly.


In the second part of this article we’ll look at supply/demand, and what experts are forecasting for housing price appreciation this year. Using these additional tools, we’ll investigate what I mean when I say the market is a bubble and you should probably buy anyway. Then I’ll let you decide the verdict, and hopefully you’ll come away with a more informed decision about whether or not it still makes sense to buy in this crazy crazy market.


Stay tuned!



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