Seeing average sale prices of Vancouver real estate grow exponentially is nothing new. Whether it was increasing demand or the influence of foreign investors, prices have been climbing for a long time. But the pandemic brought on growth as this market had never experienced before.

Just one year ago, it seemed like every month ended with home sales and pricing records. With prices reaching all-time highs, bidding wars were fierce and housing supply wasn’t keeping pace with demand. Many were wondering whether a correction was on the horizon. Now, we may be witnessing that correction.

The State of the Vancouver Housing Market

A lot has changed since 2021. High inflation, rising interest rates and economic uncertainty are the new norms and are impacting the housing market. A recent survey by RE/MAX Canada found that 44 per cent of Canadians planned to temporarily shelve their home-buying plans this fall, due to rising interest rates. Meanwhile, recession worries had 41 per cent of Canadians waiting to purchase/sell their home. Have these trends made their way into the Vancouver housing market?

Like many major markets across Canada, Vancouver has seen prices climb while the number of sales falls. Between January 1 and August 31, 2021, the average residential sale price was $1,228,124. During the same time frame in 2022, the price shot up 15.69 per cent to $1,420,839. But it looks like the winds of change may be blowing westward.

Fewer Buyers Surface in Vancouver Market

September saw the same overall sales trends continue, according to the Real Estate Board of Greater Vancouver (REBGV). Residential home sales totalled 1,687, a 46.4-per-cent decrease year-over-year. Those sales figures also represent numbers well below historical averages, with September sales sitting 35.7 per cent below the 10-year average for the month.

Andrew Lis, REBGV director of economics and data analytics, sees rising inflation as a primary driver of decreased sales. “With the Bank of Canada and other central banks around the globe hiking rates in an effort to stamp out inflation, the cost to borrow funds has risen substantially over a short period. This has resulted in a more challenging environment for borrowers looking to purchase a home, and home sales across the region have dropped accordingly.”

Average prices also experienced a decline – a new development in the market. Prices are still up on a year-over-year basis, but we are now seeing a downward trend from earlier in 2022. September’s MLS Home Price Index composite benchmark price in Metro Vancouver is $1,155,300, representing an 8.5-per-cent decline over the past six months and down 2.1 per cent month-over-month.

“With fewer homes selling and new listings continuing to come to market, inventory is beginning to accumulate, providing buyers with more selection compared to last year,” Lis said. “With more supply and less demand within this market cycle, residential home prices have edged down in the region over the last six months.”

Rising Interest Rates and Vancouver Real Estate

The Bank of Canada’s (BoC) quest to lower inflation has had ripple effects on the real estate market. By raising interest rates – 50 basis points during its October policy meeting – the BoC has made it more challenging for homebuyers to enter the market, as we have seen in Vancouver with more sellers than buyers.

“Prices are sliding fast, and the exuberance that permeated these markets earlier this year is being replaced by fear,” according to RBC assistant chief economist Robert Hogue. “In the Toronto and Vancouver areas, the decline in activity is quickly becoming one of the deepest of the past half a century.”

With more tightening expected for the remainder of 2022, economists and market observers think there could be more easing in prices and sales activity heading into 2023.

What About Foreign Buyers?

For years, many policymakers and housing experts had recommended measures to rein in foreign buyers using the Vancouver real estate market as an investment, artificially lifting valuations and pricing first-time homebuyers out of the market. This led to a 20-per-cent provincial foreign buyer’s tax. British Columbia Premier John Horgan also introduced the municipal empty home tax and the speculation tax, effectively deterring foreign buyers. In addition to the coronavirus pandemic, and the subsequent travel restrictions, property purchases from foreign homebuyers have significantly cooled off.

In 2019, there were more than 30 foreign-involved sales in five of the 12 months in 2019, resulting in the 20-per-cent levy. From March 2020, there were six months when there was only a handful of transactions by foreign buyers.

So, will most foreigners ditch Canada’s west coast as part of their real estate investment plans? Andy Yan, director of the City Program at Simon Fraser University, told Business in Vancouver (BIV) that a lot has changed across the globe during the COVID-19 public health crisis.

“Of course, the rest of the world has changed. Let’s face it, one of the main sources of growth had been coming in from China, and the Chinese rules – from the people I’ve talked to – have certainly tightened up. That brings a complication that we may not see the [previous high levels of] demand come back in”

Is the Vancouver Housing Market in for a Collapse?

Does raising interest rates, a decline in buyers, and lower sales prices add up to a collapse? The experts don’t think so. “While we have seen some easing in prices, the sky is nowhere near falling,” explains Elton Ash, Executive Vice President, RE/MAX Canada. “In fact, there is relative stability in terms of market conditions, so buyers shouldn’t expect big bargains. Sales-to-active listings remain squarely in balanced territory overall and even tight in some areas. In Vancouver, for example, supply was lower this June [2022] than last in 50 per cent of markets, and sales are down accordingly. This trend will likely keep prices fairly stable moving forward.”