Canada, Vancouver real estate in particular, seemed to weather the storm that proved to destroy the American economy in the “Great Recession.” Following the economic downturn, Americans and even people up in Canada became fearful of what their household finances would look like should we experience another financial crisis. This made many a little gun shy when it came to purchasing a home. And it wasn’t just buyers who felt the dread. Lenders felt it too and became more restrictive about who they lent money to for mortgages. This had a negative impact on consumer confidence as people who witnessed the after-effects of unmanageable debt were soured by the idea of living off credit.

Meanwhile, in Canada, we did okay. We weren’t hard hit by the recession, and in fact actually didn’t even have a recession at all. We enjoyed less unemployment and maintained a stable economy. This is because Canada can lean on its resources to keep things afloat. This helps insulate Canadians from the threats of recession. However, in Vancouver, real estate did face some challenges. The good news is things are set to improve in 2020 and beyond.

Slowed Home Sales in Vancouver Real Estate 

Back in May home sales continued to slow in Vancouver as prices decreased. There were reports of waning resale transactions and the drop was the lowest in sales since 2013.  So, as the first decline in about seven years, B.C. was looking like things were going to remain sluggish. In a weakening price environment in the Metro Vancouver area, slowed sales were to blame. It was predicted that housing prices would remain soft for the next few years.

Recessionary Conditions

Buyers sat by and watched hoping prices would continue to fall reducing real estate purchases. This led to the same report stating that ‘recessionary conditions’ in B.C.’s ownership market persisted. Even with this news experts said not to be too nervous. It wasn’t a sign the economy was in trouble. It was simply a housing market downturn with an economy in B.C. that is remaining strong with low unemployment rates, high employment growth and tight labour markets.

Stress Test Constraints

However, the low sales volume is being blamed on a lack of financing available to people who want to get into the market. This is keeping a lot of people out of the real estate game, especially first-time buyers. With the down payment constraints placed on home buyers thanks to the stress test, many people still can’t afford to take the leap into homeownership even as prices drop.

So, although the B.C. economy remains strong, the province is experiencing a housing correction. This is not surprising considering the sky-high prices of homes in the province, and particularly in Vancouver.

Slowdown Bottoming Out

There are some positives to consider, however. It appears the housing slowdown in B.C. is finally bottoming out. According to the Canada Mortgage and Housing Corporation (CMHC), before we hit 2021 there will be stabilization in housing starts, sales and prices in the province. And why? Because of favourable economic and demographic conditions. This will help drive relatively stronger new housing starts in B.C. when compared to other regions of Canada.

CMHC is predicting a low of 39,300 and a high of 42,300 starts by the end of 2019 and for 2020, a low of 40,700 and a high of 44,700. By 2021 they are estimating a low of 41,900 in 2021 and a high of 46,900.

Sales and Prices Should Climb

Despite reports from CMHC that B.C. sales dropped from over 103,000 in 2017 to about 78,000 in 2018 and the possible dip of between 62,000 and about 69,000 for 2019, there should be a climb in 2020 and 2021. They are approximating there could be from 74,600 to 84,400 home sales in 2020 and even more in 2021 between 79,800 and 90,800.

Good or bad, they also predict rising home prices in 2020. This is an increase from the 2019 declines however and will be the second-highest rate after Ontario by 2021. The area has definitely suffered due to property overvaluation in Vancouver and other regions of the province, but this should still not discourage the predicted increase in both sales and home prices. They are forecasting a benchmark B.C. price range of $656,600 to $723,400 for 2019, $675,100 to $749,500 in 2020, and $718,400 to $801,600 by 2021.

Interest and Equity

As for five-year mortgage rates, CMHC estimates they could rise from about 5.2 percent to 5.6 percent by 2021. This could affect market conditions, because of high household debt. This could make potential buyers more vulnerable as interest rates rise.

As always, in the current market, as homes become more affordable, buyers benefit but homeowners see a decrease in their home equity. This will affect their retirement assets depending on how long they have owned their homes.

As well, if interest means developers are unable to get enough pre-sales it could affect their chances of finding financing which in turn could delay building projects.

September Rebound

According to BNN Bloomberg, a 46 percent rebound in September seems Canada’s most expensive home market might be back on track despite the challenges faced by what many are referring to as a policy-driven downturn. The report shows September is the third month in a row that saw an increase in property sales which might be because prices dipped 7.4% in September compared to last year.

Vancouver has suffered due to government policies introduced since 2016 in an effort to control the growth that made the province, and particularly Vancouver become the most unaffordable urban area to live not only in Canada but the entire continent.

Because of falling home sales in the province, national sales will also see decreases that will be the lowest seen in about 10 years.

The Bubble

One last thought. In the U.S. house prices dropped by 40 to 50% of their average prices in value when the housing bubble burst. Such a drastic price drop is highly unlikely in Canada or Vancouver real estate. This is because we continue to experience a more stable economy. To say Canada or any city or province is immune to a Canadian real estate market collapse in the long term or short term would be an exaggeration as anything is possible. However, Canada is definitely in a better position to survive if it ever does happen.

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Original Source: blog.remax.ca